A stockholder walks past a large electronic board showing stocks prices chart in a stock house in Shanghai June 7, 2006. The Composite Stock Index on the Shanghai Stock Exchange closed at 1,589.55 points Wednesday, down 90 points from the previous close.(Xinhua Photo)

    BEIJING, June 7 (Xinhua) -- Chinese shares closed 5.33 percent down on Wednesday, the biggest daily fall in four years, amid concerns about short-term market prospects and in response to continuous sharp falls on neighboring stock markets, including Hong Kong and India.

    The Composite Stock Index on the Shanghai Stock Exchange, which comprises yuan-denominated A shares and foreign-currency B shares, closed at 1,589.55 points, down 89.58 points.

    The drop is the biggest daily dive since Jan. 28, 2002, when it tumbled by 91.93 points, 6.33 percent.

    The major index of Shenzhen Stock Exchange, the Shenzhen Component Index, was down 199.16 points to close at 4,095.32 points.

    Prices of 1,184 shares, out of the country's 1,370 domestically listed firms, were down. Prices of 56 shares were up and one remain unchanged. The remaining shares were suspended for trading for an ongoing State share reform or shareholders' session.

    Analysts with Beijing Shoufang Securities Co. said the stumble was mainly caused by profit-taking after the significant rises during the past year, with China's major stock index up by 70 percent.

    The Composite Stock Index on the Shanghai Stock Exchange, the country's major stock index, was near 1,700 points earlier this week after it hit a six-year low of 998 points on June 6, 2005.

    The resumption of initial public offering (IPO) last month after a one-year suspension is also considered a negative factor in the short run as IPOs would result in a massive outflow of cash from the stock market to those firms listed on the exchange without sufficient capital inflow, dealers said.

    Analysts said several firms, including the Bank of China, the country's second biggest commercial bank, announced plans to go public domestically. The bank plans to issue no more than 10 billion shares on the Shanghai exchange later this month, just after it made its IPO debut on the Hong Kong Stock Exchange on June 1.

    The analysts said China's recent moves to curb rapid hikes of housing prices through a package of real estate policies, and major downward fluctuation of commodity prices on the international markets were also blamed for the fall in price of real estate and commodity firms on the Chinese stock markets.

    Prices of some firms specializing in titanium, gold, copper and other non-ferrous metal production were down by about 30 percent after their prices tripled in the past year, mostly driven by rapid price rises of commodity futures on the international markets.

    The analysts said the regulator, the China Securities Regulatory Commission, is believed to expect stock markets to stabilize by resuming IPOs and approving a growing number of IPOs applications. Some institutional investors adopted a defensive strategy in response, dumping those shares for fat profits.

    The regulator did not want to see bubbles getting bigger and bigger as some share prices have doubled or tripled with the support of fundamentals, explained the analysts. They said the IPOs would help cool down the speculation in the markets.

    The Chinese stock markets rose to their highest points in more than 18 months earlier this week with the Shanghai Composite Stock Index at 1,678 points on Tuesday after exceeding 1,500 point and 1,600 point levels since May 1.

    The index was 998 points on June 6, 2005 and it has jumped by about 60 percent since then.

    Xu Hui, a securities analyst, said the drastic fluctuations on the international capital market also had a chilling effect on the Chinese markets.

    He said the Hang Seng Index on the Hong Kong stock exchange was down by 1,500 points in two weeks while the Indian stock market recorded a daily fall of up to 15 percent recently.

    The Chinese markets are unlikely to be immune from the international markets as China is increasingly open to the outside.

    Many analysts are concerned about the market prospects.

    Analysts with Shenyin & Wanguo Securities Co. said Wednesday's stumble indicates the beginning of a medium-term of downward fluctuations, while others say the short-term readjustment means chances of investment in this bull market cycle.

    Long Yun, an analyst with Hexun Information Co, said the stock prices are likely to stabilize after drastic falls.

    The coming IPOs will bring quality firms with attractive values to the Chinese markets step by step, adding new blood to expand the scale and improve the value of the markets, he said. Enditem