SHANGHAI, September 16 - Chinese share prices closed 4.47 percent lower Tuesday as the fallout from the collapse of US investment bank Lehman Brothers outweighed Beijing's first interest rate cut in years, dealers said.
They said the growing distress in global financial markets and clear signs about the slowing domestic economy triggered heavy selling in banks and insurers, pushing the key index to a 21-month low.
Lehman Brothers, the blue riband US investment bank, filed for bankruptcy protection in New York on Monday. The collapse, along with the takeover of Merrill Lynch by Bank of America, sent shockwaves across world markets.
"Banks led the broad decline as investors took negative cues from their US counterparts following the collapse from Lehman Brothers and broader turmoil in the US financial sector," said Wu Youhui, an analyst from GF Securities.
Meanwhile, a surprise interest rate cut Monday was initially seen as positive for the market but soon weighed on the banking sector. But property developers outperformed, benefiting from more relaxed credit conditions.
The central bank said late Monday it will cut its one-year benchmark lending rate by 27 basis points to 7.20 percent starting Tuesday, marking the first policy relaxation in more than six years, while keeping the deposit rate stable.
It also said it will lower the reserve requirement ratio for smaller financial institutions starting September 25.
"Banks are likely to suffer further losses as spread between deposit rate and lending interest rate may erode their profit margins," TX Investment's Wu Feng told Dow Jones Newswires.
The benchmark Shanghai Composite Index, which covers both A and B shares, was down 93.04 points at 1,986.64 on turnover of 33.8 billion yuan (4.9 billion dollars), off a low of 1,974.39.
The Shanghai A-share index fell 97.36 points, or 4.46 percent, to 2,085.67 points on turnover of 33.7 billion yuan, while the Shenzhen A-share index lost 7.89 points, or 1.30 percent, to 598.74 on turnover of 13.5 billion yuan.
