China’s stocks drop as speculation eases

China’s stocks fell, following the benchmark index’s biggest gain in three weeks, as waning speculation of lower bank reserve requirements overshadowed an increase in a manufacturing gauge.

Wuliangye Yibin Company slumped to the lowest level since July 2010, leading liquor makers lower after Xinhua News Agency cited China’s quality watchdog as saying samples made by JiuGuiJiu Company contain excessive levels of plasticizer.

Bloomberg News reported that JiuGuiJiu has been halted from trading this week. Inner Mongolia Baotou Steel Rare- Earth Hi-Tech Company, sank the most in a week after saying it will continue to halt output at some smelting units.

The Shanghai Composite Index closed 0.7 per cent lower at 2,015.61. It jumped by 1.1 per cent on Thursday on optimism that the People’s Bank of China would cut the reserve-ratio requirement.

The Hang Seng China Enterprises Index of Chinese companies traded in Hong Kong rose by 0.6 per cent as a purchasing managers’ index signaled the nation’s manufacturing industry may have expanded in November for the first time in 13 months.

“When the reserve-ratio requirement speculation didn’t materialize, stocks dropped again today, showing the lack of confidence among investors,” Deng Wenyuan, an analyst at Soochow Securities Company, said by phone from Suzhou.

“There’s improvement in the economic data from October and as seen from the PMI today, but we cannot make a concrete conclusion that the economy is recovering yet. It may only show real improvement from the second or third quarter next year.”

The preliminary reading of 50.4 for a HSBC Holdings Plc and Markit Economics purchasing managers’ index released today compares with October’s 49.5.

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China’s stocks drop as speculation eases