China stocks end down 0.8%, financials retreat

China's main stock index has ended 0.78 per cent lower, reversing gains earlier in the session as financial and property shares retreated, with market sentiment volatile as China confronts an economic slowdown.

The Shanghai Composite Index ended at 1,958.529 points, sliding into negative territory during the afternoon after stalling just below the psychologically key milestone of 2,000 points.

Turnover in Shanghai A shares rose to 38.6 billion yuan ($US5.7 billion) from Monday's 32.0 billion yuan. Losing Shanghai A shares outnumbered gainers by 495 to 373.

The index's modest gains in the morning extended a 2.25 per cent rise on Monday.

Several overseas markets had rallied on signs that government efforts to push down short-term lending rates were working and on comments by Federal Reserve Chairman Ben Bernanke backing more government spending to stimulate the ailing US economy.

But analysts remained wary about the outlook both in China and abroad.

"It's too early to say if this horrible financial crisis has come to an end. The effects on China will not fade so quickly," said Zhou Lin, an analyst at Huatai Securities.

A slowdown in earnings growth in the third quarter and expectations of a further slowdown in the fourth are hurting investor confidence, he added.

Lack Of Confidence

Zhang Yanbing, an analyst at Zheshang Securities, said expectations had risen for further monetary easing after official data on Monday showed a drop in Chinese inflation and slowing economic growth.

"But no policy easing has emerged, disappointing investors, and there was a lack of confidence when the index neared 2,000 points, so it might consolidate around 2,000 for a few days," he said.

Financial and property shares were weak on Tuesday after leading the market's gains on Monday.

Industrial & Commercial Bank of China , China's biggest lender, lost 1.73 per cent to 3.98 yuan, while major real estate developer China Vanke dropped 2.38 per cent to 6.97 yuan.

Huaxia Bank ended 0.85 per cent lower at 8.16 yuan. It rose earlier in the day after saying it estimated its net profit grew at least 90 per cent in the first nine months of 2008.

Resource shares outperformed, lifted by signs that the credit crisis is easing.

Coal shares led the gain, with China Shenhua rising 4.83 per cent to 20.18 yuan. Nonferrous metal shares were also strong, with Yunnan Aluminum gaining 5.39 per cent to 4.50 yuan.

Henan Lingrui Pharmaceutical soared its 10 per cent daily limit to 6.74 yuan after saying Mayinglong Pharmaceutical had bought 10 million shares in Lingrui due to its positive outlook.

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