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China Shares Sink to 14-Month Lows

China Shares Sink  to 14-Month LowsChina Shares Sink  to 14-Month Lows

Chinese shares plunged more than 6% to 14-month lows on Tuesday after oil prices dropped again, reviving concerns about global growth and prompting a sell-off in the world's equity markets.

Battered by a late selling frenzy, the benchmark Shanghai Composite Index ended down 6.4% at 2749.79 points, its lowest close since Dec. 1, 2014, Reuters reported.

The CSI300 index of the largest listed companies in Shanghai and Shenzhen dropped 6% to 2940.51, also its lowest since the beginning of December 2014.

After a rebound on Friday and early Monday, crude prices fell back below $30 a barrel, not far from last week's 12-year lows, ending a couple of days of gains for Wall Street stocks.

China's fickle stock markets have now slumped about 22% so far this year on concerns about the slowing economy and confusion over the central bank's foreign exchange policy.

Many investors have lost the stomach for the market after a wild ride since last summer, when shares crashed 40%. Beijing intervened to stem that rout and orchestrate a recovery of sorts, but anyone who mistook that for a bottom and bought in will have lost their shirt again in January.

Indeed, China's outstanding margin loans–money investors borrow to buy stocks–declined for 16 consecutive sessions to Jan. 22, the longest losing streak on record, with 209 billion yuan ($32 billion) worth of leveraged bets unwound during the period.

Yuan Strains

Investors nevertheless remain wary about further weakness in the yuan, though the People's Bank of China has kept the yuan's daily midpoint fixing little changed since the market's bearish reaction to its early January depreciation.

Spot yuan was at 6.58 on Tuesday, weakened slightly from Monday's close, while offshore it slipped to 6.61, a 0.5% discount to the onshore rate.

Injects $67b

China's monetary authorities have injected a massive amount of liquidity into the financial system in an effort to stabilize the markets. This is the second time they've done this in less than a week, NHK reported.

PBOC announced on Tuesday that it injected 440 billion yuan (nearly $67 billion) into short-term money markets through its open-market operations.

The move came after the central bank pumped 400 billion yuan into the markets last Thursday. It's the bank's largest single injection of money since February 2013.

The bank is apparently hoping to prevent more money from flowing out of the country and avoid interest rates from rising further.

China will not cut the reserve requirement ratio for the time being to avoid creating more depreciation pressure on the yuan, PBOC reported Tuesday. PBOC needs to cautiously maintain yuan stability when managing liquidity, it said. The policy signal which stems from a RRR cut would be too strong, while other tools could also be used instead to inject liquidity, it said in a statement.

Financialtribune.com