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China's Hang Seng drops -155 points as China Money Rate Surges to Highest Since 2007 on Cash Shortage

|Includes: BAC, Citigroup Inc. (C), CHIA, CHIE, CHII, CHIM, CHN, COPX, CU, EDC, EDZ, FXZ, GLD, GOEX, GS, KOL, LIT, PALL, QQQC, REMX, SIL, SIVR, SLV, STT, WFC
Recap: Stocks posted modest losses as worries over more tightening from China outweighed better-than-expected measures of U.S. jobs and housing. The China syndrome also hit commodity prices and materials stocks, which slumped broadly.

China Money Rate Surges to Highest Since 2007 on Cash ShortageBy Bloomberg News - Jan 20, 2011 10:18 PM ET

China’s benchmark money-market rate surged to the highest since October 2007 as lenders ran short of cash after the central bank’s four increases in their reserve requirements in the past three months.

The seven-day repurchase rate, which measures money availability between banks, surged 4.7 percentage points in the past five days, the most since October 2007. China reported yesterday the economy grew at a faster-than-expected 9.8 percent in the fourth quarter from a year earlier, and inflation averaged 3.3 percent in 2010, breaching the government’s goal.

“We see a serious cash shortage among banks after the latest reserve-ratio hike took effect yesterday, which is worsened by cash needs before the weeklong New Year holiday,” said Liu Junyu, a Shenzhen-based bond analyst at China Merchants Bank Co., the country’s sixth-largest lender by market value. “Even big banks have no extra cash to lend on the interbank market, signaling the central bank may suspend lifting reserve ratios and turn to raising interest rates instead after the holiday.”

The repo rate climbed 127 basis points to 7.3 percent, according to the daily fixing rate of the National Interbank Funding Center at 11 a.m. in Shanghai. It reached 8.8 percent earlier today. One basis point is 0.01 percentage point.

The central bank suspended bill sales in open-market operations this week ahead of the holiday starting Feb. 2, resulting in net inflows of 249 billion yuan ($37.8 billion) into the financial system, compared with 19 billion yuan in the prior week, Bloomberg data showed. The authority’s one-year bill offerings remained at 1 billion yuan in the last seven weeks, the smallest amount since October 2007.

The one-year interest-rate swap, the fixed cost needed to receive the floating seven-day repo rate, jumped 37 basis points this week to 3.64 percent, the most since the week ended Nov. 26.

Government bonds fell for a second week. The yield on the 3.67 percent note due in October 2020 rose nine basis points to 4 percent, the highest level for 10-year debt in more than a month, according to the funding center data.

--Belinda Cao. Editors: Sandy Hendry, James Regan

To contact the reporter on this story: Belinda Cao in Beijing at lcao4@bloomberg.net

To contact the editor responsible for this story: Sandy Hendry at shendry@bloomberg.net