SHANGHAI stocks dropped this morning on speculation a more flexible yuan may pull down the valuation of yuan assets while eight IPOs this week may drain credit from the market.

The Shanghai Composite Index shed 0.22 percent, or 5.17 points to 2,353.99, with a turnover of 39.2 billion yuan (US$6.2 billion) by the noon break.

The yuan's trading band against the US dollar was doubled from 0.5 percent to 1 percent and takes effect today, according to a People's Bank of China statement on Saturday.

"The trend of the yuan's one-way appreciation has come to an end," said Zhang Zhongwen, a fund manager. "Yuan-based assets are facing a revaluation. House prices may drop sharply and deal the real estate market a head-on blow."

Property developers were mixed. Vanke China Co, the nation's biggest developer, retreated 0.5 percent to 8.54 yuan. Poly Real Estate Group Co, the second-biggest developer, gained 0.7 percent to 11.93 yuan. Gree Real Estate Co lost 0.2 percent to 6.24 yuan.

"New IPOs will intensify the credit crunch if there's no funds to support the market," Newtimes Securities said in a report today.

Eight IPOs will be launched this week and they plan to raise a combined 3.83 billion yuan in the A-share market, according to Oriental Morning Post.

Lenders retreated in the morning session although market watchers said the central bank will cut the reserve requirement ratio for county-level banks. The country's fourth-biggest lender, Bank of China, led the fall among lenders, slipping 1 percent to 3.03 yuan at the break. China Citic Bank lost 0.9 percent to 4.33 yuan. Bank of Communications retreated 0.4 percent to 4.72 yuan.

Source:shanghaidaily