China hunts for 'manipulators' as stocks tumble

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China Hunts Manipulators To Stem Market Rout

Chinese stocks tumbled again on Friday, taking the week's losses to more than 10 percent, as the securities regulator said it was investigating suspected market manipulation and announced a slew of measures aimed at heading off a full-blown crash.

After a slump of nearly 30 percent in Chinese stocks since mid-June, the China Securities Regulatory Commission (CSRC) has set up a team to look at "clues of illegal manipulation across markets".

After market close, a CSRC spokesman said China would cut initial public offerings and capital raisings and support long-term investors entering the market to help stabilize prices.

It also said China's official margin lender for brokerages, which makes loans available for stock market investment, would boost its capital base to 100 billion yuan ($16 billion) from 24 billion yuan to expand its business.

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China hunts for 'manipulators' as stocks tumble
A man holds prayer beads while monitoring stock prices at a brokerage house in Beijing Monday, July 13, 2015. Chinese authorities have accused securities firms of manipulating share prices and allowing improper trading during the country's market plunge, in a possible effort to deflect blame for investor losses totaling several trillion dollars. (AP Photo/Andy Wong)
A man checks on stock prices at a brokerage house in Beijing Monday, July 13, 2015. Chinese authorities have accused securities firms of manipulating share prices and allowing improper trading during the country's market plunge, in a possible effort to deflect blame for investor losses totaling several trillion dollars. (AP Photo/Andy Wong)
FILE - In this Friday, July 10, 2015, file photo, a Chinese investor monitors stock prices as he sits in a brokerage house in Beijing. Asian stocks rose for a second day on Friday as the Greek government proposed a broad financial overhaul to its creditors and Beijing's attempts to arrest a sharp slide in the Chinese market appeared to be working. However, most Asian markets were still in the red from a week earlier. (AP Photo/Mark Schiefelbein, File)
QINGDAO, CHINA - JULY 03: (CHINA OUT) Investors observe stock market at a stock exchange hall on July 3, 2015 in Qingdao, Shandong Province of China. Chinese shares continued to decline on Friday. the benchmark Shanghai Composite Index depreciated 5.77%, to at close at 3682.92 pointes, lowest point on Friday. (Photo by ChinaFotoPress/ChinaFotoPress via Getty Images)
SHANGHAI, CHINA - JULY 03: (CHINA OUT) An investor observes stock market at a stock exchange hall on July 3, 2015 in Shanghai, China. Chinese shares continued to decline on Friday. the benchmark Shanghai Composite Index depreciated 5.77%, to at close at 3682.92 pointes, lowest point on Friday. (Photo by ChinaFotoPress/ChinaFotoPress via Getty Images)
Investors talk to each other as they check stock prices at a securities firm in Wuhan, in central China's Hubei province on July 3, 2015. Shanghai shares on July 3 extended their plunges of recent weeks, ending the morning session down more than three percent in volatile trading as analysts said panic was setting in. CHINA OUT AFP PHOTO (Photo credit should read STR/AFP/Getty Images)
Investors monitor stock prices at a securities firm in Wuhan, in central China's Hubei province on July 3, 2015. Shanghai shares on July 3 extended their plunges of recent weeks, ending the morning session down more than three percent in volatile trading as analysts said panic was setting in. CHINA OUT AFP PHOTO (Photo credit should read STR/AFP/Getty Images)
Investors talk to each other as they check stock prices at a securities firm in Wuhan, in central China's Hubei province on July 3, 2015. Shanghai shares on July 3 extended their plunges of recent weeks, ending the morning session down more than three percent in volatile trading as analysts said panic was setting in. CHINA OUT AFP PHOTO (Photo credit should read STR/AFP/Getty Images)
Investors talk in front of a board displaying share prices at a security firm in Shanghai on July 1, 2015. Shanghai shares closed down more than five percent on July 1, resuming their downward trajectory a day after recording their biggest gains in more than six years. AFP PHOTO CHINA OUT (Photo credit should read STR/AFP/Getty Images)
An investor checks share prices at a security firm in Shanghai on July 1, 2015. Shanghai shares closed down more than five percent on July 1, resuming their downward trajectory a day after recording their biggest gains in more than six years. AFP PHOTO CHINA OUT (Photo credit should read STR/AFP/Getty Images)
Investors talk in front of a board displaying share prices at a security firm in Shanghai on July 1, 2015. Shanghai shares closed down more than five percent on July 1, resuming their downward trajectory a day after recording their biggest gains in more than six years. AFP PHOTO CHINA OUT (Photo credit should read STR/AFP/Getty Images)
An investor walks past a share prices board at a security firm in Hangzhou, eastern China's Zhejiang province on June 30, 2015. AFP PHOTO CHINA OUT (Photo credit should read STR/AFP/Getty Images)
People walk past an electronic display showing the Hang Seng Index on June 30, 2015. Asian markets rebounded after the previous day's rout, despite Greece being just hours away from default, while Shanghai surged in volatile trading that saw swings of more than eight percent. AFP PHOTO / ISAAC LAWRENCE (Photo credit should read Isaac Lawrence/AFP/Getty Images)
TO GO WITH China-economy-stocks, FOCUS by Fran Wang This photo taken on June 26, 2015 shows an investor checking the share prices in a stock firm in Fuyang, east China's Anhui province. When China's main share index hit a seven-year high earlier this month, it topped off a run that had seen it more than double in value over the past year, placing it among the world's top performers. AFP PHOTO CHINA OUT (Photo credit should read STR/AFP/Getty Images)
Investors check share prices in a stock firm in Fuyang, east China's Anhui province on June 29, 2015. Chinese shares plunged in morning trading on June 29, extending losses from the past two weeks despite a surprise interest rate cut at the weekend. AFP PHOTO CHINA OUT (Photo credit should read STR/AFP/Getty Images)
TO GO WITH China-economy-stocks, FOCUS by Fran Wang This photo taken on June 26, 2015 shows an investor checking the share prices in a stock firm in Fuyang, east China's Anhui province. When China's main share index hit a seven-year high earlier this month, it topped off a run that had seen it more than double in value over the past year, placing it among the world's top performers. AFP PHOTO CHINA OUT (Photo credit should read STR/AFP/Getty Images)
A Chinese stock investor monitors share prices at a securities firm in Fuyang, in China's Anhui province on June 19, 2015. Shanghai shares plunged 6.42 percent on June 19, ending a torrid week as the benchmark index was hit by tight liquidity and profit-taking after a powerful surge over the past year. CHINA OUT AFP PHOTO (Photo credit should read STR/AFP/Getty Images)
Chinese stock investors react as they check prices at a securities firm in Fuyang, in China's Anhui province on June 19, 2015. Shanghai shares plunged 6.42 percent on June 19, ending a torrid week as the benchmark index was hit by tight liquidity and profit-taking after a powerful surge over the past year. CHINA OUT AFP PHOTO (Photo credit should read STR/AFP/Getty Images)
A Chinese investor takes a nap in a brokerage house in Beijing, Friday, July 10, 2015. Asian stocks rose for a second day on Friday as the Greek government proposed a broad financial overhaul to its creditors and Beijing's attempts to arrest a sharp slide in the Chinese market appeared to be working. But most Asian markets were still in the red from a week earlier. (AP Photo/Mark Schiefelbein)
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A flurry of policy moves over the past week, including an interest rate cut and a relaxation of margin lending rules, had failed to arrest the sell-off.

The People's Bank of China (PBOC) also rolled over 250 billion yuan of medium-term loans to banks late on Friday to ensure adequate liquidity in the system.

"The government must rescue the market, not with empty words, but with real silver and gold," said Fu Xuejun, strategist at Huarong Securities Co, before the CSRC and PBOC announcements, adding that a market crash would hurt banks, consumption, companies and even trigger social instability. "It's a disaster. If it's not, what is it?"

The CSI300 index .CSI300 of the largest listed companies in Shanghai and Shenzhen dropped 5.4 percent to close at 3,885.92, while the Shanghai Composite Index .SSECshed 5.8 percent to 3,686.92 points.

Hong Kong's Hang Seng index .HSI fell 0.8 percent to 26,064.11.

For the week, the CSI300 lost 10.4 percent and the SSEC fell 12.1 percent.

The rout in China's highly leveraged stock market has become a major worry for global investors, who fear a meltdown could destabilize the world's second-largest economy at a time when growth is already slowing.

Chinese stocks had more than doubled between November and mid-June, fueled largely by retail investors using borrowed money.

"This is happening against an (economic) growth backdrop that continues to look soft, as illustrated by the flat manufacturing survey this week," noted analysts at Barclays.

"With growth data still soft, China remains a key uncertainty for the global outlook."

SHORT SELLERS TARGETED

The China Daily newspaper said on Friday that the CSRC was probing investors who used stock index futures to "short" the market - or bet on prices falling.

Sources with direct knowledge told Reuters that the China Financial Futures Exchange (CFFEX) had suspended 19 accounts from short-selling for a month.

After market close, CFFEX said it was introducing transaction fees on futures contracts on three indexes and strengthening the market to combat short-selling activities.

Guotai Junan Securities (601211.SS), one of China's top brokerages, said it would suspend lending securities to clients for short-selling and step up monitoring of abnormal trading behavior by short-sellers.

Much of the selling of Chinese stocks has been driven by "margin calls", when a brokerage that has extended credit to an investor to buy stocks demands more cash or collateral because prices have fallen.

If those margin calls continue, it also could affect other markets as investors need to raise cash.

"Some funds have closed their copper positions to send funds back to China, in order to meet their margin payments on stock indexes," said one metals broker in Hong Kong.

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Herald van der Linde, Asia equity strategist at HSBC, said there were signs that some money being pulled out of stocks was going into other assets, with a pick-up in physical property transactions.

"It could go to Hong Kong, it could go to property, it could go to cash," he said. "But if they have to repay debt, it's basically deleveraging, as well."

Beijing has been struggling since the weekend to find a policy formula to restore confidence in its stock markets.

So far, rapid-fire steps including easing monetary policy, encouraging more pension funds to invest in stocks and cutting transaction costs have failed to stem the slump.

The CSRC has relaxed rules on using borrowed money to speculate on stocks, letting brokerages set their own tolerance level on margin calls and allowing the rollover of margin lending contracts.

On Friday, the regulator also said it would step up its monitoring of markets to protect investors against the mis-selling of investment products.

China releases second-quarter gross domestic product data on July 15, and many economists expect growth to dip below 7 percent, which would be the weakest performance since the global financial crisis.

(Additional reporting by Chen Yixin, John Ruwitch, David Lin, Zhang Xiaochong and Kazunori Takada in Shanghai, Michelle Price in Hong Kong and; Writing by Wayne Cole,Alex Richardson and Will Waterman; Editing by Rachel Armstrong)

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