ASIA MARKETS: China Stocks Drop, Nikkei Hits 26-year High In Thin Christmas Trading

By Yifan Xie Features Dow Jones Newswires

Chinese stocks drop; Nikkei down slightly

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Chinese stocks fell on Christmas Day, extending this year's underperformance in a slow session in which most global markets are closed.

But Japan's benchmark crept up to set another 26-year closing high.

The Shanghai Composite Index fell 0.5% to 3280.46 amid continued weakness in small-caps, more than offsetting intraday gains by real-estate blue chips. The index fell as much as 0.8% Monday afternoon, with nearly 1,000 stocks declining.

The Shenzhen market , which symbolizes China's new economy, continued to perform even worse. The Shenzhen Composite shed 0.9% Monday, having fallen more than 5% the past year, and hit a low of more than two weeks. The city's tech-stock heavy ChiNext index slid 1.3%.

A gauge of the 50 largest stocks in Shanghai -- which has been a rare bright spot for Chinese stocks in 2017, rising 26% -- eased just 0.02% Monday.

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Sizable declines in Chinese metals futures aided to the bearish sentiment in stocks. Dalian-traded iron ore ended 2.2% lower while the most actively traded steel-rebar futures contract in Shanghai slumped 3.1% amid falling spot steel prices over the weekend and muted demand expectations.

Investors remain concerned about liquidity stress, a regulatory crackdown involving speculative trading and an acceleration in initial public offerings, said Deng Wenyuan, an analyst at Soochow Securities.

China's securities regulator has sped up IPO approvals, adding pressure on once-highflying technology shares in Shenzhen. More than 400 companies have made their debut on the A-share market this year, raising more than 225.5 billion yuan ($34.3 billion) as of Monday, compared with 150.4 billion yuan from 227 IPOs in 2016, according to data from Wind Information Co.

"Liquidity stress has prompted more investors to divert funds from small-caps to large blue chips this year to avoid correction risk. This phenomenon is likely to continue next year since monetary policies are expected to remain tight," said Deng.

Beijing is likely to set growth of money supply at all-time low of 9% in 2018 as government efforts to curb financial leverage continues, China Daily, a state-run newspaper, said Monday.

Meanwhile, China's central bank didn't hold reverse-repurchase operations in the money market on Monday, resulting in a net 120 billion yuan being withdrawn from the market following eight straight sessions of net injections.

Elsewhere in Asia, Japan's Nikkei closed up 0.2% at 22939.18, setting a fresh 26-year closing high, while Taiwan's benchmark index edged down 0.1%.

Bitcoin rebounded during the course of Monday's Asian trading, putting it near the day's highest levels in recent trading at $14,200.

(END) Dow Jones Newswires

December 25, 2017 05:33 ET (10:33 GMT)