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SHANGHAI: China stocks closed lower in volatile trading on Tuesday, after a sharp correction the previous session, as worries over policy tightening weighed on sectors with lofty valuations, although losses were limited by gains in financials shares.

The blue-chip CSI300 index fell 0.3% to 5,579.67, after logging the biggest daily drop in nearly seven months on Monday. The Shanghai High-flying sectors, including consumer and new energy firms, continued to sag on tightening fears.

The CSI300 consumer discretionary index dropped 1.8% after falling 5.9% on Monday, while the CSI new energy index declined 0.6%.

Composite Index slid 0.2% to 3,636.36.

“The trend of China’s policy tightening is quite evident and definite, though the PBOC would refrain from sudden and fast tightening with an aim to provide stability for the market,” said Zheng Zichun, an analyst with AVIC Securities.

“We now favour cyclical companies, including those in petroleum and chemical, nonferrous metals, digging and financial industries,” he said.

China’s central bank said it would prioritise policy stability and avoid making sudden shifts, while providing the support needed for a continued economic recovery in 2021.

However, financial firms gained, with the CSI300 banks index adding 1% as investors expected banks to benefit from a continued economic recovery and policy tightening. The index has gained nearly 15% so far this year.

Investors also seemed to look past the latest developments on Sino-US relations.

Wally Adeyemo, President Joe Biden’s nominee for the No. 2 job at the US Treasury, vowed to crack down on authoritarian governments and fight unfair economic practices in China and elsewhere while working to rectify economic inequality at home.

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