Declining blue chips dragged down Shanghai's key stock index in the morning session today on speculation new shares will dilute existing holdings and the central bank said it will continue to order banks to set aside more reserves.

The Shanghai Composite Index, which tracks yuan-denominated A shares and hard-currency B shares, lost 2.96 percent, or 129.27 points, to 4,241.02. The index opened at 4,500.39 at 9:30 am today.

Losers in the Shanghai market outnumbered gainers 681 to 153 while 18 were unchanged.

The Shenzhen Composite Index, which covers the mainland's smaller stock market, dropped 2.14 percent, or 29.54 points, to 1,352.46.

Shanghai Pudong Development Bank Co, which said last week it's studying a plan to sell new shares to the public, fell for a fourth day this morning. Shanghai Pudong, the Chinese partner of Citigroup Inc, declined 1.45 percent, or 0.58 yuan, to 39.40 yuan.

China Merchants Bank Co dropped to an almost seven-month low on concern the end of a two-year share lock-up this week will spark a sell-off by institutional investors. China Merchants, the nation's largest dual-currency credit card issuer, fell 2.73 percent, or 0.83 yuan, to 29.52 yuan.

Other banks also fell after the People's Bank of China said it will "vigorously" reduce money supply by raising the reserve ratio, which erodes profit by restricting funds available for loans.

China Railway Construction Corp., which starts accepting subscriptions for its initial share sale today, also added to concerns funds will be diverted from existing issues.

The company, the builder of more than half of the nation's rail links since 1949, may raise US$5.4 billion in first-time stock sales in Shanghai and Hong Kong, Bloomberg News said. That would be the world's biggest stock sale this year.

China Unicom, which controls the nation's second-largest cell phone operator, dived 9.98 percent, or 1.21 yuan, to finish the session at 10.92 yuan.

China's reorganization of its telecommunications industry won't take place before the two-week National Party Congress starting on March 5, the Shanghai Securities News said today, citing an official at the economic planning agency.

The plan is to form three business groups through the breakup of mobile-phone operator China Unicom, the report quoted Shi Hui, a director at the government's economic and management research institute at the National Development and Reform Commission, as saying at a conference organized by Guojin Securities in Beijing on Saturday

China Unicom's smaller code division multiple access network, or CDMA, will be sold to fixed-line operator China Telecom Corp, while its larger global system for mobile communications service will be acquired by China Netcom Group Corp, the report said.

China Mobile Communications Corp will take over China Tietong Telecommunications Corp, the Shanghai Securities News said. The three merged companies will then offer both fixed-line and mobile phone services, according to the report.

(Shanghai Daily, February 25, 2008)