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China's Shanghai Composite Index fell Tuesday by
8.8 percent, while the smaller Shenzhen
Composite Index sank by 8.5 percent.
The selloff, the biggest one-day fall in a
decade, came as investors dumped shares for
quick profit from Monday's record high, when the
Shanghai index surpassed 3,000 points for the
first time closing at 3,040.
The Shanghai index closed Tuesday at 2,771
points, down 269 points.
Tony Tong is an analyst at Everbright Research
in Hong Kong. He says higher interest rates may
also have encouraged investors to take money out
of China's unpredictable stock markets and put
it into safer investments in state-run banks.
"The market is thinking that there may be
another hike in the reserve ratio and even
interest rates. So the credit-tightening issue
would be a major concern," he said. " I would
say in the coming few weeks the market will
remain under pressure."
China's economy and the stock markets have
boomed over the past few years, prompting fears
that excess investment could lead to problems
such as inflation or excess industrial and
property capacity. Those problems could trigger
a market collapse or a recession.
The government, hoping to gently cool down the
economy, in the past year has repeatedly raised
interest rates and restricted bank loans.
However, those measures appear to have had
little deterrent effect on investors. China's
stock markets doubled in value last year,
leading to concerns of a market bubble that
could collapse.
Stock markets around Asia Tuesday were down as
well, with many investors concerned about a
possible slowdown in the U.S. economy. Most
indexes fell one to three percent.
Indexes in South Korea, Australia and Singapore
dropped from record highs. Hong Kong's Hang Seng
Index of blue chip stocks fell 1.8 percent to a
four-week low, partly in reaction to the
mainland drop in stock value.
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