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China: Stocks post worst month of 2017 on worries over regulation, economic growth

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[SHANGHAI] China's main stock indexes were little changed on Friday but posted worst month of the year on fears that regulators will step up their latest crackdown on riskier types of financing and speculation, and on lingering worries over economic growth.

While China's regulatory enforcement has tended to wax and wane in the past, investors fear there may be no let up in the latest campaign after President Xi Jinping made a rare speech this week on financial stability.

Mr Xi called on Tuesday for increased efforts to ward off systemic risks to help maintain financial security, the official Xinhua news agency said. "We think it sends an important signal to support the ongoing tightening of financial regulation and enforcement,"Citi wrote in a recent note.

The blue-chip CSI300 index fell 0.2 per cent, to 3,439.75 points, while the Shanghai Composite Index edged up 0.1 per cent to 3,154.66 points.

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For the week, the CSI300 fell 0.8 per cent, while SSEC lost 0.6 per cent, both down for the third straight week.

For the month, the CSI300 was down 0.5 per cent, while SSEC lost 2.1 percent.

Chinese fund managers have trimmed their suggested equity exposure for the next three months to the lowest in 6 months, according to a monthly Reuters poll.

Sustained efforts by authorities to wring excessive leverage from the system could tighten liquidity and sour investors'sentiment further, said Zhang Gang, an analyst with China Central Securities, while adding he did not see further substantial losses for stocks.

China watchers have generally expected another modest increase in short-term interest rates by the central bank around June, but see no aggressive or politically sensitive tightening moves ahead of a major leadership transition later in the year.

Still, the People's Bank of China (PBOC) and other regulators have ramped up the pressure on a number of fronts as they look to contain financial risks after years of debt-fueled stimulus.

The PBOC has drained 815 billion yuan (S$165 billion) on a net basis from money markets via open market operations so far this year, but has stepped in and injected funds from time to time when markets appeared to be growing too stressed.

The economy has been another concern, with investors worrying growth could have peaked in the first quarter and may slow during the rest of the year.

China will release official April factory and service sector activity readings on Sunday. Analysts expect manufacturing expanded for the ninth straight month but at a slower pace.

Sector performance was mixed on Friday. Losses were led by defensive plays, in particular consumer and healthcare stocks, as investors took profits after a strong rally.