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China blue-chips slump most in nearly 7 months on valuation, policy tightening concerns

* CSI300 -3.14%, biggest drop since July 2020

* Tighter stance to be formalised in coming months - analysts

* Consumer firms weigh, distillers lead losses

SHANGHAI, Feb 22 (Reuters) - China’s blue-chip index posted its biggest daily drop in nearly seven months on Monday after touching record highs last week, as investors fretted over high stock valuations and the risk of policy tightening. ** China left its benchmark lending rate for corporate and household loans unchanged for a 10th straight month on Saturday, but speculation has been rising that authorities may begin to adopt a tighter policy stance. ** “Monetary conditions have tightened in practice since the start of the year. We expect the PBOC to formalise the shift with policy rate increases in the next few months,” said analysts at Capital Economics. ** China’s blue-chip CSI300 index slumped 3.14% to close at 5,597.33 points, its biggest daily percentage drop since July 24, 2020. ** The Shanghai Composite index fell 1.45% to 3,642.44 points. ** Liquor shares fell, with heavyweight Kweichow Moutai Co Ltd dropping 7% as foreign investors sold shares through the Stock Connect. ** The consumer staples sector slumped 5.96%, the healthcare sub-index dropped 5.15% and the financial sector sub-index shed 1.75%. ** Trading activity was elevated, with 48.88 billion shares trading on the Shanghai exchange, about 153.9% of the market’s 30-day moving average of 31.77 billion shares a day. ** The Shenzhen index ended down 2.08% and the start-up board ChiNext Composite index dropped 4.47%. ** At 07:11 GMT, the yuan was quoted at 6.4631 per U.S. dollar, 0.05% weaker than the previous close of 6.4598. ** Despite Monday’s slump, valuations remain near record highs and some analysts expect earnings to stay strong on a cyclical recovery. ** “We could see a sharper rotation into cyclical stocks like banks, materials and energy, with tech shares remaining strong following very robust performance (year-to-date),” said Carlos Casanova, senior economist for Asia at Union Bancaire Privee. (Reporting by Andrew Galbraith; Editing by Vinay Dwivedi)

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