China's Stocks Fall Most in 2 Months on Services, U.S. Jobs Data

China’s stocks fell the most in two months after the nation’s non-manufacturing industries expanded at a slower pace for a second month and fewer U.S. jobs were added than economists estimated.

PetroChina Co. (601857), the second-largest oil refiner, dropped to a record low as the Shanghai Securities News reported fuel prices may be cut and JPMorgan Chase & Co. lowered its estimate for China’s gross domestic product for the second time in a month. Sany Heavy Industry Co., China’s biggest machinery maker, declined 3.4 percent after Nomura Holdings Inc. reduced its outlook for the industry.

“There’s a lot of psychological pressure among investors with the weak non-manufacturing data in China and global issues such as U.S. data and the euro crisis dragging on stocks,” said Tang Yonggang, an analyst at Hongyuan Securities Co. in Beijing. “We are hoping for more stimulus measures in June and are anticipating reserve-ratio cuts or even interest-rate cuts this month to boost the economy.”

The Shanghai Composite Index (SHCOMP) fell 43.2 points, or 1.8 percent, to 2,330.24 as of 1:10 p.m. local time, heading for the biggest drop since March 28. About 7.77 billion shares changed hands on June 1, 3 percent lower than the daily average this year. The CSI 300 Index (SHSZ300) retreated 1.9 percent to 2,583.92. The Bloomberg China-US 55 Index (CH55BN), the measure of the most-traded U.S.-listed Chinese companies, tumbled 3.4 percent to 87.22 on June 1 in New York, the biggest slump since Nov. 21.

The Shanghai Composite has climbed 5.9 percent this year on optimism the government will ease monetary policies and accelerate approvals of infrastructure projects to spur growth. Stocks in the measure are valued at 10 times estimated earnings, compared with a record low of 8.9 times on Jan. 6, according to weekly data compiled by Bloomberg.

Slowdown Spreading

The purchasing managers’ index fell to 55.2 in May from 56.1 in April, the National Bureau of Statistics and China Federation of Logistics and Purchasing said in a statement yesterday in Beijing. That’s the lowest reading since March 2011 when the federation started seasonally adjusting the data. A reading above 50 indicates expansion.

“The data reinforce the message that the slowdown has spread from the manufacturing sector to the services sector,” said Tim Condon, chief Asia economist at ING Financial Markets in Singapore. “The current slowdown is more complicated to read than the 2008 global financial crisis and is stressing the authorities’ vaunted fine-tuning skills.”

Service industries now account for 43 percent of the economy, the federation said in yesterday’s statement. The manufacturing PMI compiled by the statistics bureau and logistics federation expanded at the slowest pace since December, according to a June 1 report.

Slowing Growth

JPMorgan cut China’s 2012 growth forecast to 7.7 percent from its previous estimate of 8 percent, citing increasing downside risks in the euro area. This comes after it cut the estimate to 8 percent from 8.2 percent in a May 2011 note.

A gauge of energy producers in the CSI 300 fell 2.9 percent, the most among 10 industry groups. China Shenhua Energy Co., the largest coal producer, slid 2.5 percent to 25.25 yuan. Yanzhou Coal Mining Co. declined 2.9 percent to 22.13 yuan.

PetroChina declined 1.4 percent to 9.33 yuan, poised for a record low. China Petroleum & Chemical Corp. (600028), the largest Chinese refiner, fell 2.1 percent 6.56 yuan. China may cut gas and diesel prices by about 700 yuan per ton, the Shanghai Securities News said, citing industry website Chem99.com.

German Chancellor Angela Merkel meets fellow coalition leaders today after opposing joint debt sharing in the euro area. Europe is China’s biggest export market, making up about 18 percent of the nation’s overseas shipments, according to Shenyin & Wanguo Securities Co.

China ETF

Sany Heavy dropped 3.4 percent to 14.42 yuan. Zoomlion Heavy industry Science and Technology Co., the second-biggest construction machinery maker, slid 1.7 percent to 10.81 yuan. Nomura said excavator-industry sales to China will fall 27 percent in 2012, compared with a prior estimate of a 12 percent decline, as fixed-asset investment will be weaker-than-expected.

Chinese equities traded in New York fell the most in six months on June 1, as SouFun Holdings Ltd. sank to a one-week low after data indicated housing prices fell and manufacturing slowed in the world’s second-largest economy.

The iShares FTSE China 25 Index Fund, the biggest Chinese exchange-traded fund in the U.S., tumbled 2.4 percent to $32.69, following a 12 percent decline in May. The Standard & Poor’s 500 Index of U.S. shares slumped 2.5 percent to 1,278.04 as U.S. employers in May added the fewest workers in a year.

Payrolls climbed by 69,000 last month, less than the most- pessimistic forecast in a Bloomberg News survey, after a revised 77,000 gain in April that was smaller than initially estimated, Labor Department figures showed yesterday in Washington. The median projection called for a 150,000 May advance. The jobless rate rose to 8.2 percent from 8.1 percent.

Housing Prices

SouFun, owner of China’s biggest real estate website, lost 5.3 percent to $14.94 in New York trading on June 1, the lowest since May 25, after sinking as much as 10 percent. American depositary receipts of Shanghai-based E-House China Holdings Ltd. decreased 5.7 percent to $5.14, extending their three-day loss to 16 percent.

China’s home prices declined 0.3 percent from April to 8,684 yuan ($1,363) per square meter (10.76 square feet), Beijing-based SouFun said in an e-mailed statement June 1, based on its survey of 100 cities in the country. That’s the lowest since January 2011 and the ninth month-on-month drop, the longest stretch since it started compiling the data in July 2010.

China’s stocks “are two to four weeks away from the bottom before a significant rebound,” Michael Shaoul, chairman of Marketfield Asset Management in New York, which oversees more than $1.6 billion, said by phone June 1. “There is strong evidence the Chinese domestic economy is decelerating. There’s a race between data in China and government action.”