China stocks slump as Sino-U.S. tensions escalate

SHANGHAI, July 24 (Reuters) - China stocks slumped on Friday to finish the week lower, as investors fretted over an escalation in tensions between Beijing and Washington after China ordered the United States to close its consulate in Chengdu in a tit-for-tat response.

** The blue-chip CSI300 index fell 4.4% to 4,505.59, while the Shanghai Composite Index retreated 3.9% to 3,196.77.

** The tech-heavy start-up board ChiNext slumped 6.1%, while the newly-launched STAR 50 index dived 7%.

** China’s foreign ministry said it told the U.S. embassy on Friday morning to close its consulate in the southwestern city of Chengdu, days after Washington ordered the closure of the Chinese consulate in Houston.

** U.S. Secretary of State Mike Pompeo also took aim at China, calling for Washington and its allies to use “more creative and assertive ways” to press the Chinese Communist Party to change its ways.

** “The market drop is mainly due to worries over the escalating Sino-U.S. tensions,” said Zhang Gang, an analyst with China Central Securities.

** Zhang said major indexes were mainly pulled down by heavyweight financials, as investors pocketed gains following the recent rally given the uncertainties brought about by the renewed tensions.

** Leading the decline, the CSI SWS securities index tumbled 6.4%. Despite Friday’s losses, the index is up 16% in July.

** Bucking the broad sell-off, China’s defence stocks surged on renewed tensions between the world’s top two economies.

** “We expect that before the dust settles on November’s U.S. presidential election, the U.S. will repeatedly provoke contradictory disputes with China. We will closely monitor the implementation of the Phase 1 trade deal between the U.S. and China,” China Construction Bank analysts wrote in a note.

** Despite Friday’s sharp losses, the CSI300 index shed only 0.9% for the week and SSEC lost 0.5%, thanks to gains made earlier as Beijing moved to bolster the market by lifting equity investment cap for insurers. (Reporting by Luoyan Liu and Andrew Galbraith; Editing by Subhranshu Sahu)