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Resistance Expected For China Stock Market

The China stock market has closed higher now in four straight sessions, gathering more than 75 points or 3.3 percent in that span. The Shanghai Composite settled just shy of the 2,360-point plateau, and now analysts are forecasting a modest correction to the downside at the opening of trade on Monday.

The global forecast for the Asian markets suggests consolidation, with investors likely locking in gains after rallying on Friday. Concerns from Europe's financial sector add to the cautious sentiment after data showed that Spanish banks stepped up their borrowings from the European Central Bank in March. The European and U.S. markets finished lower, and the Asian bourses are tipped to follow that lead.

The SCI finished slightly higher again on Friday supported by gains from the brokerages, although it was limited by GDP data that missed expectations.

For the day, the index added 8.30 points or 0.35 percent to finish at 2,359.16 after trading between 2,346.94 and 2,369.70 on turnover of 92.32 billion yuan. The Shenzhen Component Index collected 36.06 points or 0.36 percent to end at 10,043.72 on turnover of 84.49 billion yuan.

Among the gainers, China Merchant Securities jumped 4.63 percent, while China Everbright Securities climbed 3.00 percent, Hua Tai Securities added 2.44 percent and Gemdale Corporation collected 0.16 percent.

Moving lower, China Construction Bank shed 0.42 percent, while Poly Real Estate fell 1.00 percent, China Vanke lost 1.15 percent) and PetroChina eased 0.40 percent.

The lead from Wall Street is negative as stocks moved sharply lower on Friday, giving back some ground after posting strong gains in the two previous sessions. Renewed concerns about corporate earnings and the global economy contributed to the weakness in the markets.

The pullback was partly due to disappointing economic news out of China, the world's second largest economy behind the U.S. Data released by the Chinese National Bureau of Statistics showed that Chinese economic growth slowed to 8.1 percent in the first quarter from 8.6 percent in the fourth quarter. Economists had expected a more modest slowdown to 8.4 percent.

Traders also reacted negatively to quarterly results from JP Morgan (JPM) and Wells Fargo (WFC), which closed notably lower despite reporting better than expected first quarter earnings.

Additional negative sentiment followed a report from Reuters and the University of Michigan showing an unexpected deterioration in U.S. consumer sentiment in April. The preliminary reading on consumer sentiment in April fell to 75.7 compared to March's final reading of 76.2. Economists had expected the index to come in unchanged on month. A separate report from the Labor Department showed an increase in consumer prices in March that matched economic estimates.

The major averages saw further downside going into the close, ending the session near their worst levels of the day. The Dow slid 136.99 points or 1.1 percent to finish at 12,849.59, while the NASDAQ tumbled 44.22 points or 1.5 percent to end at 3,011.33 and the S&P 500 fell 17.31 points or 1.3 percent to 1,370.26. With the losses on the day and the sell-off earlier in the week, the major averages all posted weekly losses. The Dow fell by 1.6 percent, while the NASDAQ and the S&P 500 dropped by 2.2 percent and 2 percent, respectively.

In economic news, the Chinese economy slowed more than expected in the first quarter, data from the National Bureau of Statistics showed Friday. The gross domestic product expanded 8.1 percent year-on-year in the first three months of 2012, slower than the fourth quarter's 8.9 percent increase. Economists were looking for 8.4 percent.

Separately, the statistical office reported that the industrial production grew 11.9 percent year-on-year in March, compared with expectations for an 11.5 percent expansion. Retail sales increased 15.2 percent annually in March while expectations were for a 14.8 percent rise. Urban fixed asset investment expanded 20.9 percent during the three months ended March, slightly slower than the 21 percent increase forecast.

Also, the World Bank trimmed its 2012 growth estimate for China, as domestic demand growth as well as investment decelerates amid weak foreign orders. Nevertheless, the lender sees prospects of a soft landing. The growth projection for this year was lowered to 8.2 percent from its January estimate of 8.4 percent, the Washington-based lender said in its China Quarterly Update on Thursday. The prospects for a gradual adjustment of growth remain high.

Also, China's fiscal revenues increased in March despite a slowdown in economic growth, the Ministry of Finance said on Friday. Revenues increased 18.7 percent in March from a year ago. In the first quarter, national fiscal revenues climbed 14.7 percent. At the same time, fiscal expenditure advanced 34.7 percent annually in March.

Finally, the People's Bank of China on Friday decided to cut reserve ratios for some rural financial institutions by one percentage point. The reserve ratio requirement cut came after the economy logged it weakest growth in nearly three years. The gross domestic product expanded 8.1 percent year-on-year in the first three months of 2012. In February, the central bank had reduced the reserve requirement ratio by 50 basis points to 20.5 percent for large commercial banks.

by RTT Staff Writer

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