August 4, 2016 / 4:56 AM / 2 years ago

China stocks sag as policy dilemmas stifle stimulus, HK joins Asian rally

* CSI300 -0.2 pct; SSEC -0.2 pct; HSI: +0.6 pct

* Looser monetary policies risk fuelling asset bubbles-analysts

* HSBC rebounds on share buy-back scheme

SHANGHAI, Aug 4 (Reuters) - China stocks sagged on Thursday morning, bucking the trend in Hong Kong and most other global markets, amid signs that Beijing is trapped between unappealing policy alternatives as it battles to stimulate the sluggish economy.

Both the CSI300 Index and the Shanghai Composite Index dipped 0.2 percent in thin volume, to 3,186.68 points and 2,972.66 points, respectively.

China’s central bank said late on Wednesday that the government would use multiple monetary policy tools and maintain ample liquidity and reasonable credit growth in the second half of the year.

On the same day, the National Development and Reform Commission (NDRC), China’s state planner, said the country will find an appropriate time to cut interest rates and reserve requirement ratios (RRR), and will reduce companies’ funding and other costs.

But the reference to rate and RRR cuts were later deleted by NDRC, a move interpreted by some as showing policy rifts among various government bodies.

“The government is facing a dilemma. Businesses are struggling under the current environment so NDRC hopes rate cuts can reduce their cost burden,” said Yang Hai, strategist at Kaiyuan Securities.

“But easing monetary policies further risks fuelling property price bubbles, as people have little inclination to invest in the real economy.”

Some point out looser monetary policies would also add to depreciation pressure on the yuan. Analysts believe the currency could fall more than 3 percent against the dollar within a year, more than expected just a month ago, a Reuters poll found.

All main sectors fell on Thursday morning, with transport shares leading the decline.

Shares in Ping An Bank dropped over 2 percent in high volumes following media reports that Liu Shuyun, the lender’s assistant president, was taken away by Shenzhen police.

Hong Kong shares followed Wall Street higher as oil prices bounced. The Hang Seng index added 0.6 percent, while the Hong Kong China Enterprises Index gained 0.5 percent.

HSBC rose 1.9 percent as the lender announced a $2.5 billion share buy-back scheme.

Reporting by Samuel Shen and Pete Sweeney; Editing by Eric Meijer

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