Why Did China Stocks Retreat From 7-Month Highs?

China stocks pulled back from seven-month highs on Tuesday as a sharp correction in bank shares offset sustained strength in the property sector.

Both the blue-chip CSI300 index and the Shanghai Composite Index lost 0.5 percent, to 3,378.25 and 3,110.04 points, respectively.

Expectations of fresh monetary easing soon, which has fueled the recent market rally, cooled after a senior central bank official said China's banking system has ample liquidity, and that interest rates are already at a low level.

"You see a lot of excitement in markets now as people see the chance of making quick money in some sectors, such as real estate," said Wu Kan, head of equity trading at investment firm Shanshan Finance.

"But the state of the economy doesn't justify a sustained market rally. Sector rotation is more likely."

The banking sector dropped 2 percent on profit-taking, following the previous session's jump. Bank of Ningbo, the most expensive among China's listed lenders, plunged 6.8 percent in huge volume.

But real estate stocks remained strong, with an index tracking the sector rising 3.2 percent to a fresh seven-month high, bringing gains so far this month to 26 percent.

Bellwether Vanke jumped 10 percent to an all-time high - the third straight session in which it had risen 10 percent.

(Reporting by Samuel Shen and Pete Sweeney; Editing by Shri Navaratnam)