Chinese shares dip after credit curb, but off lows

China's shares closed down on Monday as investors sold off banks after a fresh government credit tightening threatened to siphon off more funds from markets.
The benchmark Shanghai composite index, grouping hard-currency B shares and yuan-denominated A shares, edged down 0.25 percent to 1,722.986 points.
But the index recouped most early losses as sentiment stayed firm after a strong market rally this year, analysts said.
"Monday's trade indicated the impact of the fresh credit tightening had been factored in quickly," said analyst Xia Shiming at Jiulian Securities. "We believe the potential for the index to fall further will be limited."
China's central bank said on Sunday it would hike bank reserve ratio requirements by half a percentage point to cool rapid credit growth and head off resurgent inflation by draining funds from the system.
The rise would soak up 110 billion yuan ($13.3 billion) and take effect from April 25, the People's Bank of China said.
It is the third time in less than seven months the government has moved to tighten credit. It said in March it would raise the bank reserve ratio for poorly capitalised lenders, after hiking it by one percentage point for all banks in September 2003.
China Merchants Bank Co Ltd, the largest of the country's five listed lenders, was one of Monday's most active counters. It fell 0.8 percent to 10.59 yuan as investors feared the tightening could slow lenders' loans expansion.
Sole private lender Minsheng Banking Corp shed 1.3 percent to 10.49 yuan, while Huaxia Bank slid 1.6 percent to 7.42 yuan.
Monday's fall also extended a correction late last week, but the Shanghai index is still up 15 percent since the start of 2004 after a record number of mutual funds poured money into booming sectors such as petrochemicals and steel.
"With the abundant mutual funds, the market is not likely to suffer a liquidity crunch even after the reserve hike," said analyst Ren Chengde of Galaxy Securities.
Analysts said they maintained a forecast that the index would surpass the psychologically key 1,800 level over the next few weeks, buoyed by improving corporate earnings prospects on the back of robust economic growth.