Chinese shares in Shanghai and Hong Kong dropped Thursday, reversing some of the gains from the previous session, when they soared on speculation that Beijing will announce an economic stimulus plan.
The benchmark Shanghai Composite dropped 1.7% to 2,480.17 in morning trading, after soaring 7.6% in the previous session on speculation Beijing may announce a 200 billion to 400 billion yuan ($29 billion-$58 billion) fiscal stimulus package. The Shenzhen All Share index slid 1.2% to 703.99, after surging 7.2% Wednesday.
"Although we expect further policy easing and some fiscal stimulus [from Beijing], we believe most of the speculation is baseless and flawed," wrote Merrill Lynch analysts in a note.
They added that rumors that China may use its massive forex reserves to buy yuan-denominated A-shares "have been circulated for a long while, but in our opinion, the whole idea is seriously flawed and is unlikely to ever have been seriously considered by Beijing's policy-making circle."
In Hong Kong, the benchmark Hang Seng index lost 1.5% to 20,610.36, while the Hang Seng China Enterprises Index declined 1.1% to 11,053.93.
Markets in the rest of the region also declined, with Japanese shares faltering after opening higher. Worries about a slowing global economy dragged on banks such as Sumitomo Mitsui Financial Group, while Toyota Motor Corp. declined on a report the auto giant planned to cut its 2009 sales target.
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