Weak data prompts drop in equity prices

The yuan has so far weakened about 1.4 percent this year. The People's Bank of China lowered the daily reference rate by 0.18 percent, the most since July 2012, to 6.1312 per dollar on Monday.

The cut in the yuan's value "is significant, coming on the heels of poor trade data and suggests a possible policy push to weaken the yuan to help exporters", said Dariusz Kowalczyk, a Hong Kong-based strategist at Credit Agricole CIB.

The number of new yuan loans made by Chinese banks halved in February, and liquidity in the economy tightened, official data showed on Monday.

China sees trade deficit in Feb

China's inflation up 2% in February

New bank loans totaled 644.5 billion yuan in February, the People's Bank of China said, down from 1.3 trillion yuan in January and below market forecasts of 716 billion yuan.

Total social financing, a broad measure of liquidity and credit, fell sharply to 938.7 billion yuan from January's 2.58 trillion yuan.

"They stabilized monetary policy, and this is having an effect on demand for loans," said Tim Condon, head of Asia research for ING Financial Markets in Singapore.

M2 money supply grew 13.3 percent in February from a year earlier. Outstanding yuan loans were 14.2 percent higher than a year earlier, also in line with forecasts. Chinese data in January and February can be distorted by the timing of the Lunar New Year holidays, which fell mainly in February this year, and as banks try to grab market share.

"The recent declines in the stock market are mainly caused by corrections," said Xin, noting that most of the trading now is focused on small caps and the Growth Enterprise Board.

"Because corrections unfold over half a month, the room for the SCI (Shanghai Composite Index) to go downward is limited," he added.

Although some analysts worry that low inflation and falling producer prices may indicate the economy is losing the impetus for growth, some said at least inflation is clearly not a threat, China will have room to loosen policies to bolster the economy if need be.

Meanwhile, some observers say it is necessary to consider the distortion caused by China's Lunar New Year when analyzing February export data.

"In our view, both January and February's export data were heavily distorted by the different timing of Chinese New Year this year. Looking ahead, we still expect China's exports to strengthen through 2014, on the back of reviving US and European demand," said Wang Tao, chief China economist with UBS AG.

Xiao Gang, chairman of the China Securities Regulatory Commission, said on Sunday his organization is working to issue delisting regulations in the next phase of reform while make delisting a frequent, market-oriented procedure.

Reuters contributed to this story.

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