Chinese shares fall 1.6 percent as investors dump foreign currency "B shares"

(AP) Investors looking for reassurance after last week's jolt to global markets didn't find it in China on Monday.

China's benchmark Shanghai Composite Index fell 1.6 percent on Monday as traders sold off holdings in foreign-currency denominated "B shares" after officials denied rumors those stocks might be merged with the mainstream Chinese-currency "A shares."

The main Shanghai Composite Index closed at 2,783.31. The smaller Shenzhen Composite Index fell 0.7 percent to 725.82.

The decline came as markets in Asia and Europe extended their slide into a second week amid worries over a possible global slowdown.

In China, a lack of market-boosting news as the national legislature began its annual session also appeared to sap buying enthusiasm.

Investors began selling B-shares, which are traded separately from yuan-denominated "A shares," after Zhu Congjiu, president of the Shanghai Stock Exchange, told reporters there were no plans to merge the two markets. Zhu's remarks were widely reported in the state media.

The Shanghai market's B-share index plunged 6.9 percent to 161.44. Shenzhen's B-share index fell 6.4 percent to 461.58

Speculation that the markets might be merged had pushed B-share prices higher in recent weeks since investors believed such shares might be exchanged at a premium for A shares.

Even after Monday's tumble, Shanghai's B-share index was still 24 percent above where it began the year. The A-share index was up 4.11 percent for the year, despite a nearly 9 percent plunge on Feb. 27 that rattled global markets.

Meanwhile, comments by China's central bank governor and premier suggesting authorities might tighten credit and raise interest rates and bank reserve requirements to combat rising inflation also cast a pall on markets already shaken by last week's volatility.

Signals so far suggest that China is determined to prevent a speculative bubble in share prices, which more than doubled last year and rose to a record high a week ago, investment house Morgan Stanley's chief economist Stephen Roach said in a report issued last week.

"A stock market correction could well be an unavoidable outgrowth of actions aimed at cooling off China's overheated investment sector," Roach said. "More administrative actions can be expected."

Blue chips were broadly lower Monday. Baoshan Iron & Steel fell 5.12 percent to 8.90 yuan; Industrial & Commercial Bank of China, the country's biggest lender, slipped 2.29 percent to 4.69 yuan and Bank of China fell 0.64 percent to 4.68 yuan.

Ping An Insurance, which had surged about 40 percent on its trading debut Thursday, fell 4.37 percent to 44.38 yuan.

In currency dealings, the official exchange rate for the Chinese yuan was set at a record high Monday of 7.7403 amid the dollar's continued decline against the yen.

But the dollar rebounded in late trading, closing at 7.7500 on the over-the-counter market.