MercoPress. South Atlantic News Agency

Beijing tightens and Shanghai composite drops 7% in June

China's main stock exchange index dropped 2% Friday, making June the worst month since May 2005. Fears that the government might announce measure to soak liquidity are behind the collapse.

The Popular Assembly approved Friday a special bonds issue in Yuan equivalent to 200 billion US dollars with the purpose of financing China's overseas development agency. A second measure was to cut 20% of tax on bank deposits interest. According to analysts in Shanghai the second half of the year won't be as benign as the first when equity values soared to unprecedented levels. Shanghai's Composite index fell 2.39% to 3.820,7 on Friday after having dropped 3.44%. On Thursday the index had fallen 4.03%. Trading volume on Friday fell to the equivalent of 13.6 billion US dollars, the lowest since the beginning of April, compared to almost 15.5 billion on Thursday. The Shanghai composite dropped 7% in June but it still accumulates 43% in 2007. The market began debilitating when Beijing increased taxes on shares transactions to discourage speculation towards the end of May. Further strong signals from the Chinese government occurred when officials cracked down on banks following illicit loans to purchase stocks.