The benchmark Shanghai composite index, grouping hard-currency B shares open to foreign investors and yuan-denominated A shares, fell 0.45 percent to 1,559.705 points.

Shanghai's B-share index fell 0.30 percent to 116.442 points, while Shenzhen's slipped 0.30 percent to 222.17 points.

A shares in China Merchants Bank, the biggest of the Chinese mainland's four listed banks, were among the top 10 most actively traded counters and ended down 1.99 percent at 11.80 yuan (US$1.43) as a heavy 14.47 million shares changed hands.

They had risen 45 percent since the start of this year.

On Friday, the People's Bank of China ordered Chinese banks to increase down payments for buyers of second homes from the standard 20 percent and offer loans only to finished housing projects, among other measures.

Brokers said investors expected the new measures to reduce bank lending and this pushed them to take profits in bank stocks, which had surged this year.

The Pudong Development Bank's A shares closed down 2.19 percent at 12.51 yuan (US$1.51), while those in the Shenzhen Development Bank slipped 1.24 percent to 11.99 yuan (US$1.45).

Analysts said yesterday's fall was compounded by the greater number of flotations since the start of June.

Shao Rui, a senior analyst at Shanghai Securities, said: "Quicker market expansion this month has triggered worries that already-tight market liquidity might be squeezed further."

But analysts also said the slide in indices would be short-lived and that the Shanghai composite index was likely to move narrowly in the near term after a 2.4 percent rise last week.

Analyst Xi Weidong at Jinxin Securities said: "The markets saw some correction after gains last week. But there is no negative news and we believe share indices can hold on to their present levels."

Shenzhen's A-share index fell 0.31 percent to 453.20 points, while Shanghai's was down 0.45 percent at 1,633.357 points.

A shares in major property firm Shanghai Lujiazui bucked the trend to rise 0.64 percent to 14.23 yuan (US$1.72) after the firm said it would sell a piece of land to China Merchants Bank for 372.6 million yuan (US$45.02 million).

China's yuan ended a notch weaker against the US dollar at 8.2769 yesterday, even as forward yuan premiums on overseas markets rose to a record high.

The yuan was sandwiched in a tight range of 8.2768 to 8.2770, moving near the strong end of a tiny 8.2760 to 8.2800 band enforced by the People's Bank of China. Turnover rose to a healthy US$670 million from Friday's US$610 million.

Renewed speculation that China would allow its currency to appreciate soon spurred forward premiums on the yuan to a historic peak of 1,500 points per US dollar.

Non-deliverable forwards on the yuan have been climbing since last week on a pick-up in trades counting on a revaluation, sparked partly by a Goldman Sachs report that predicted a sooner-than-expected revaluation.

(China Daily June 17, 2003)