Stocks drop most in a month on worries

1.7 percent decline caused mainly by rating cuts of eurozone nations

An investor at a stock brokerage in Shenyang, capital of Liaoning province, on Monday. The Shanghai Composite Index decreased 1.7 percent on Monday, just a day before the government is to release data expected to show China's economic growth slowed further in the fourth quarter of 2011. Provided to China Daily

SHANGHAI - China's stocks fell, dragging the benchmark index down the most in a month, after Standard & Poor's cut the ratings of nine eurozone nations.

China Cosco Holdings Co, the world's largest operator of dry-bulk ships, paced losses by trade-related companies. Jiangxi Copper Co, China's biggest producer of the metal, dropped 3.5 percent and PetroChina Co slipped 1.1 percent after commodity prices retreated.

Liquor maker Wuliangye Yibin Co slid after Xinhua News Agency said some of its products failed tests.

"The sovereign rating cuts in Europe will increase the borrowing costs of those countries and hamper their economic growth," said Wu Kan, a fund manager at Dazhong Insurance Co, which oversees $285 million.

The Shanghai Composite Index dropped 38.39 points, or 1.7 percent, to 2206.19 at the close, capping a four-day, 3.5 percent decline. The CSI 300 Index slid 2 percent to 2345.55.

The Shanghai Composite dropped 1.3 percent on Friday as speculation waned that the central bank would cut reserve ratios for banks before the Spring Festival holidays next week. Credit Suisse Group AG and Royal Bank of Scotland Group PLC said inflation would hamper the government's ability to ease monetary policy. The decline pared the index's weekly advance to 3.8 percent, the first gain in two months.

The Shanghai index trades at 9 times estimated earnings, near the record low of 8.9 times reached on Jan 6, according to weekly data compiled by Bloomberg. The measure is up 0.3 percent this year after plunging 22 percent last year. The central bank cut lenders' reserve requirement ratios for the first time since 2008 on Nov 30.

The MSCI Asia Pacific Index fell 1.2 percent on Monday after Standard & Poor's said France was cut to AA+ and the rating has a negative outlook. Cyprus, Italy, Portugal and Spain were lowered two grades while the long-term ratings on Austria, Malta, Slovakia and Slovenia were reduced one level, the ratings agency said.

Ratings cuts

Europe is China's biggest export market, with about 18 percent of the Asian nation's overseas shipments destined for the region, according to Shenyin & Wanguo Securities Co.

Shipping companies fell. China Cosco declined 2.2 percent to 4.38 yuan (69 US cents). China Shipping Container Lines Co, the country's second-largest carrier of sea-cargo boxes, dropped 3.5 percent to 2.48 yuan, the biggest retreat since Nov 30.

Bill Gross, who runs the world's biggest bond fund at Pacific Investment Management Co, said Greece is heading for default. S&P's downgrade of European ratings shows countries can fail to meet their debt obligations, Gross said in a micro-blog posting. Greece will prove to be the latest example, Gross wrote.

Concerns over global growth also dragged commodity producers lower as metal and oil prices declined. Jiangxi Copper slid 3.5 percent to 22.61 yuan. Yunnan Copper Industry Co, China's fourth-biggest producer of the metal, eased 2.9 percent to 16.25 yuan. PetroChina, the nation's largest oil company, sank 1.1 percent to 10.09 yuan, the biggest decline in three weeks.

The yuan retreated 0.10 percent, the most since Jan 6, to 6.3131 for each dollar as of 3:26 pm in Shanghai, according to the China Foreign Exchange Trade System. The currency is allowed to trade 0.5 percent on either side of the daily fixing.

The yuan may depreciate about 2 percent against the dollar this year, Fan Jianping, chief economist at the State Information Center, said at a forum in Beijing on Saturday.

Wuliangye, China's second-biggest maker of white liquor by market value, dropped 5.5 percent to 30.45 yuan. Some of the liquor made by the company failed tests conducted by the Guangdong provincial administration for industry and commerce on the strength of alcohol in the products, Xinhua reported on Sunday. It didn't provide further details.

Chinese companies have started to announce annual earnings reports and will finish before the end of April. Thirteen companies in the Shanghai Composite have released annual profits for 2011 so far, with an average gain of 22 percent, according to Bloomberg data. That compared with an increase of 38 percent in the previous year.