Chinese stocks dropped for a second day, dragging the Shanghai Composite Index to a three-week low, as falling steel prices and transport rates spurred concerns about the country's economic recovery.

Tangshan Iron & Steel Co retreated 3.9 percent after its parent cut prices of reinforcing bars used in buildings for a second month. China Cosco Holdings Co fell 3 percent as a measure of shipping costs for commodities declined. PetroChina Co, the nation's biggest oil company, lost 1.7 percent after crude slipped.

"Judging from falling product prices, the recovery doesn't seem to be very solid and the outlook is still clouded by uncertainty," said Yan Ji, who helps oversee about $1.2 billion at HSBC Jintrust Fund Management Co in Shanghai.

The benchmark index fell 54.83 points, or 1.9 percent, to 2,842.72 at close, adding to Tuesday's 2.3-percent drop and its lowest close since Sept 2. The CSI 300 Index, measuring exchanges in Shanghai and Shenzhen, slid 2.3 percent to 3,060.07.

The Shanghai gauge has lost 18 percent since this year's peak on Aug 4 on concerns a plunge in new lending will derail the economic rebound and a flood of share sales will draw funds away from existing equities.

The decline ended a 91-percent rally this year that was driven by optimism the government's $586-billion stimulus package and more than 1 trillion of new loans would guarantee the economy reached the government's 8 percent annual growth target. Stocks on the index trade at 31.44 times reported earnings, compared with last year's low of 12.87 times, Bloomberg data shows.

The Baltic Dry Index, which tracks transport costs on international trade routes, fell on Tuesday to its lowest level in more than four months after data showed Chinese demand for coal and iron ore to make steel is tumbling.

China Cosco retreated 3 percent to 12.62 yuan. China Shipping Development Co, a unit of China's second-biggest sea-cargo group, fell 2.6 percent to 12.10 yuan. Cosco Shipping Co, a unit of the largest, slid 4.2 percent to 9.74 yuan.

The country's iron-ore imports declined 14 percent in August from July and coal imports slid 15 percent, a second consecutive monthly decline, according to customs data.

An 11-percent rebound on the Shanghai Composite this month through Sept 18 lured investors to open more accounts to trade stocks for the first time in seven weeks. Individual investors opened 345,844 accounts last week, data from the nation's clearing house showed yesterday.

The figure is less than half the 700,000 registered in the last week of July, when investors were rushing to buy equities following the end of a nine-month ban on initial public offerings and a rebound in economic growth.

(China Daily September 24, 2009)