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1st LD-Writethru: Chinese shares drop amid central bank's liquidity drain

Xinhua, February 7, 2017 Adjust font size:

Chinese shares fell slightly Tuesday, weighed on by the central bank's continued move to drain liquidity.

The benchmark Shanghai Composite Index fell 0.12 percent to close at 3,153.09 points. The Shenzhen Component Index closed 0.23 percent lower at 10,055.57.

Combined turnover rebounded to 351.14 billion yuan (about 51 billion U.S. dollars) from 329.2 billion yuan the previous trading day.

"As the stock market faces greater pressure in terms of liquidity, there will be higher risks in the short term," Shanxi Securities said in a research note commenting on Tuesday's performance.

"Liquidity in the banking system remains at a relatively high level. To maintain stable liquidity, the central bank will not conduct reverse repos Tuesday," the People's Bank of China said in a statement.

This was the third straight trading day for the central bank to suspend open market operations in a new sign of policy tightening. Reverse repos are a process by which central banks purchase securities from banks with an agreement to sell them back in the future.

"Without enough liquidity, there is not likely to be any considerable rebound in the stock market," central China's Hunan-based Founder Securities said.

Aircraft and ship builders were the weakest on Tuesday, with the sub-indices for both sectors dropping by more than 1 percent.

Avic Aircraft, an industry leader in China, dropped 2.96 percent. China Shipbuilding Industry Company dropped 0.26 percent.

PetroChina, the largest oil and gas producer in China, dropped 0.47 percent. Industrial and Commercial Bank of China, China's largest commercial bank, dropped 0.22 percent.

The ChiNext Index, which tracks China's NASDAQ-style enterprises, dropped 0.6 percent to close at 1,889.13. Endi