Index may rise as inflation worry eases
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Shanghai's stock market may rebound a little this week as concerns over inflation ease after China told banks to put aside more money from lending, analysts said.
The Shanghai Composite Index lost 3.24 percent last week to close at 2,888.57 points. The gauge plunged as much as 10 percent in mid-week before staging a technical recovery of 26.6 points last Friday.
Also on Friday, the People's Bank of China, the central bank, raised reserve requirement ratio on banks by 0.5 percentage point to a record 18.5 percent.
The rise in the ratio is the second time in nine days and the fifth time this year, underlying China's determination to curb liquidity and combat inflation.
China had raised the interest rates by 0.25 percentage point in mid-October, the first increase in 34 months. However, market watchers still expect more hikes in the pipeline. Standard Chartered Bank China has forecast four more interest rate rises by the middle of 2011.
"The rise in reserve ratio has eased expectations of another interest rate hike in the short term, bolstering market sentiment," Everbright Securities Co wrote in a note. "Meanwhile, international capital and household savings are expected to alleviate the pressure from a tight market liquidity on expectations of a yuan appreciation."
But analysts cautioned that the room for a significant rebound is limited as the Chinese government may impose further measures to tighten market liquidity.
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