The composite index of Shanghai Stock Exchange dipped 26.9 points, or 1.68 percent, to open at 1,565.457 points on Monday morning trading, the first day of trading since the central bank announced a rise in interest rates.

 

On Friday the central bank hiked the one-year benchmark interest rate 0.27 percent.

 

The composite index of another bourse in China, the Shenzhen Stock Exchange, also dropped 78.99 points, opening at 3,835.825 points on Monday.

 

Interest rates now stand a 2.52 on one-year deposits and 6.12 on the one-year loan rate, as set by the People's Bank of China (PBC), or the central bank.

 

The central bank raised the loan rates by the same margin in late April but did not change the deposit rates.

 

The rise in interest rates may have sparked fear of insufficient capital available for stock market players. China's stock markets resumed trading, after a year-long freeze, with about six billion dollars worth of stocks hitting the market.

 

A flurry of initial public offerings (IPOs) have investors concerned that capital could dry up and send the market tumbling.

 

On Monday, the China Securities Regulatory Commission (CSRC) started reviewing the IPO plans of Dalian Zhangdao Fishery Group, Zhejiang Dongliang New Material and Zhejiang Jiakang Electronics. The CSRC had not conducted IPO reviews for three weeks.

 

"Although the three are all small caps, some investors may fear an IPO glut could cause liquidity pressure," Zhang Yidong, an analyst at Industrial Securities, said.

 

In June and July, after 10 companies, including the State-owned Bank of China and the Daqin Railway, presented their IPOs on the mainland, the total market value of shares already listed on Chinese stock markets slumped by more than 400 billion yuan (US$50 billion).

 

(Xinhua News Agency August 21, 2006)