A slide in index heavyweight China United Telecommunications Corp pushed China shares to close lower on Monday amid lingering worries over a government-ordered tightening of credit.
China Unicom, the smaller of China's two cellular carriers, was the most active counter, diving 4.28 percent to 4.03 yuan after first-quarter reports by mutual funds published on Monday showed they had reduced their holdings in Unicom.
"Retail investors ditched China Unicom shares after the funds' quarterly reports indicated institutional selling," said analyst Wu Ang at CITIC Securities. "This sparked a selling spree in other large caps, depressing the index."
The benchmark Shanghai composite index, grouping hard-currency B shares and yuan-denominated A shares, finished 1.06 percent lower at 1,675.885 points.
The index has fallen 5.72 percent since April 6, weighed down by a government-ordered clampdown on excess lending.
Analysts said the index might stage a moderate rebound.
"The recent fall has reduced some profit-taking pressure, so the index might rebound if it can find support at the key 1,650 level," said analyst Zhang Yong at Shanghai Securities.
But analysts ruled out a reverse of general market weakness in the near term due to fears of further official credit curbs.
The central People's Bank of China announced on April 11 its third hike in bank reserve ratio requirements in seven months to cool rapid lending as the country's economy grew another strong yearly 9.7 percent in the first quarter after last year's jump.
The government would also consider raising bank interest rates if rising consumer prices tip the real lending rate into negative territory, vice central bank governor Wu Xiaoling was quoted by state newspapers as saying on Monday.
Heavyweight Yangtze Electric Power Co Ltd, the firm that manages China's giant hydropower Three Gorges Dam, was also active on Monday and closed down 2.81 percent at 9.35 yuan.
Analysts said large-capitalised companies were hit by profit-taking after institutional investors had built heavy positions during a market rally earlier this year.
Before the latest market fall, the index had risen 19 percent by April 6 from the start of 2004 to become the best-performing stock index in Asia, buoyed by strong interest in large caps.
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