Domestic stocks plunged in the morning session amid slumps among air carriers over speculation about a takeover battle for China Eastern.

The Shanghai Composite Index, which tracks both yuan-denominated A shares and hard-currency B shares, lost 0.87 percent, or 47.7 points, to close at 5,437.31.

The Shenzhen Composite Index, which covers the smaller mainland stock market, declined 0.82 percent, or 12.4 points, to 1,493.84.

Among the stocks in the Shanghai Composite index, 232 rose, 535 fell and 75 were unchanged.

Airline stocks dived today on concerns about a bidding war for China Eastern after Cathay Pacific Airways Ltd and Air China Ltd said they are considering bowing out of a bidding battle with Singapore Airlines to gain a big share of China's third-biggest carrier.

China Eastern, the nation's third-largest carrier by fleet size, plummeted 2.19 yuan (29 US cents), or 9.98 percent, to 19.75 yuan.

Cathay Pacific is expected announce this week that it's making an offer for a large stake in China Eastern, perhaps in tandem with Air China, the Daily Telegraph said on its Website on Saturday.

Air China, the nation's largest international carrier, and Cathay Pacific own about 17.5 percent of each other.

Cathay Pacific and Air China may bid for China Eastern as the carrier has nearly 50 percent of the air travel market in Shanghai, according to Citigroup Inc. Singapore Airlines and parent Temasek Holdings Pte agreed to buy a 24 percent stake in China Eastern for US$918 million on September 2.

Cathay Pacific is preparing to make a statement, spokeswoman Carolyn Leung said yesterday without elaboration. Shares of both Cathay Pacific and Air China plunged on the Hong Kong market this morning.

Air China's shares in Shanghai dived 2.77 yuan, or the daily cap of 10 percent, to 24.92 yuan. The company was suspended from trading in both Shanghai and Hong Kong yesterday.

China Southern Airlines Co, the nation's biggest carrier, slid 2.55 yuan, or 9.94 percent, to 23.11 yuan. The stock climbed 79 percent in the three weeks to September 20.

The banking sector also had a bad morning but China Construction Bank Corp surged on its debut in Shanghai.

Industrial & Commercial Bank of China, the nation's biggest listed lender, lost 0.18 yuan, or 2.69 percent, to 6.51 yuan. China Merchants Bank Co, the nation's seventh-largest lender, dipped 0.79 yuan, or 2.09 percent, to 37.07 yuan.

Minsheng Banking, the nation's first non-state-owned bank, lost 0.36 yuan, or 2.3 percent, to 15.28 yuan while Bank of China also dipped 0.09 yuan, or 1.52 percent, to close at 5.85 yuan.

China Construction Bank Corp, the country's second-largest lender, surged 33.64 percent from its offer price to 8.62 yuan. The bank raised 58 billion yuan in the world's second-biggest share sale this year.

Property developers continued yesterday's gains this morning.

China Vanke, the nation's largest publicly traded developer, added 0.71 yuan, or 2.29 percent, to 31.70 yuan. Beijing North Star Co, the property arm of Beijing's city government, jumped 0.03 yuan, or 0.22 percent, to 13.66 yuan.

Shanghai-based Shimao Property Holdings also advanced 0.33 yuan, or 1.11 percent, to close at 30.07 yuan.

(Shanghai Daily September 25, 2007)