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China's Stock Markets Experience Biggest Fall in 10 Years


China's stock markets have dropped by about nine percent as investors sold shares to cash in on record high share prices. The sharp slump is the biggest loss in 10 years and highlights the volatility of the Chinese stock markets. Daniel Schearf reports from Beijing.

China's Shanghai Composite Index fell Tuesday by 8.8 percent, while the smaller Shenzhen Composite Index sank by 8.5 percent.

The selloff, the biggest one-day fall in a decade, came as investors dumped shares for quick profit from Monday's record high, when the Shanghai index surpassed 3,000 points for the first time closing at 3,040.

The Shanghai index closed Tuesday at 2,771 points, down 269 points.

Tony Tong is an analyst at Everbright Research in Hong Kong. He says higher interest rates may also have encouraged investors to take money out of China's unpredictable stock markets and put it into safer investments in state-run banks.

"The market is thinking that there may be another hike in the reserve ratio and even interest rates. So the credit-tightening issue would be a major concern," he said. " I would say in the coming few weeks the market will remain under pressure."

China's economy and the stock markets have boomed over the past few years, prompting fears that excess investment could lead to problems such as inflation or excess industrial and property capacity. Those problems could trigger a market collapse or a recession.

The government, hoping to gently cool down the economy, in the past year has repeatedly raised interest rates and restricted bank loans.

However, those measures appear to have had little deterrent effect on investors. China's stock markets doubled in value last year, leading to concerns of a market bubble that could collapse.

Stock markets around Asia Tuesday were down as well, with many investors concerned about a possible slowdown in the U.S. economy. Most indexes fell one to three percent.

Indexes in South Korea, Australia and Singapore dropped from record highs. Hong Kong's Hang Seng Index of blue chip stocks fell 1.8 percent to a four-week low, partly in reaction to the mainland drop in stock value.

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