SHANGHAI--China's shares ended lower Monday, as property developers tumbled because of concerns about fresh tightening measures and a worsening territorial spat between China and Japan dealt a blow to companies with close business ties to Japan.
The benchmark Shanghai Composite Index, which tracks both A and B shares, ended down 2.1%, or 45.35 points, at 2078.50, marking the index's largest percentage drop since it fell 2.4% on July 9. The Shenzhen Composite Index fell 2.9%, or 25.53 points, to 864.19.
"Sentiment has soured because of political issues and speculation about further tightening in the housing market," said Central China Securities analyst Zhang Gang.
September and October are traditionally a high season for home purchases, partly because of a surge in buying around the week-long national day holiday at the beginning of October. Analysts are concerned that the rise in demand could push up property prices, prompting the government to introduce more market-cooling measures.
Such concerns hurt the shares of local developers. China Vanke fell 3.4% to CNY8.06, China Merchants Property plunged 7.8% to CNY19.15 and Poly Real Estate dropped 6.7% to CNY9.71.
An escalation of tensions between China and Japan over a group of disputed islands battered companies with Japan links. Guangzhou Automobile, which has car-making joint ventures with Honda and Toyota, fell 6.1% to CNY5.53, and home appliance maker Hefei Rongshida, which is 30%-owned by Sanyo Electric Co., fell 3.3% to CNY7.14.
Analysts said that given the weak prevailing economic conditions, local shares are likely to continue consolidating over the short term.
"The market lacks upward momentum because key indicators show that economic growth is still slowing," said Dongxing Securities analyst Liu Guangming.
Also, the Federal Reserve's recently announced bond-buying plan will lead to higher commodity prices, which will squeeze Chinese manufacturers' profit margins further, he said.
However, "any downside will also be limited as investors have largely priced in the negative impact of a cooling economy," said Mr. Liu.
Bucking the declines, salt makers rallied after local microblogs said coastal residents had been buying up salt because of concerns about a potential escalation in the tensions between China and Japan.
Qingdao Soda Ash Industrial surged by the 10% daily limit to CNY6.40, Yunnan Salt jumped 7.1% to CNY8.25 and Shanghai Chlor-Alkali Chemical added 4.7% to CNY8.97.
Gold makers extended their gains, taking cues from higher gold prices, which got a boost from the Fed's plans. Zhongjin Gold rose 2.8% to CNY16.84 and Shandong Gold ended up 1.2% at CNY40.14.
Write to Rose Yu at rose.yu@dowjones.com
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