February 28, 2020 / 5:07 AM / a month ago

CORRECTED-China stocks set for worst month since May on pandemic fears

(Corrects milestone in headline, lead, fixes quote in paragraph eight)

* SSEC, CSI300 fall more than 3%, Hang Seng down 2.5%

* Shanghai shares set for worst week since last April

* Coronavirus infections spread rapidly across the world

* China Feb factory activity shrink most since 2009 - poll

SHANGHAI/HONG KONG, Feb 28 (Reuters) - Shares in China dropped on Friday, on course for its biggest monthly fall in nine months, as the coronavirus sparked fears of contagion and sent global markets tumbling.

Infections spread rapidly around the world and new infections outside China now surpass those in the country where the epidemic began, dashing hopes would be over anytime soon and economic activity would return to normal.

Chinese stocks, which have been resilient to losses on Wall Street and Asian markets for much of the week, bowed to pressures from the global sell-off on Friday.

The Shanghai Composite Index and the blue-chip CSI300 index both shed over 3% by midday, which would be their the biggest daily fall since the market meltdown on Feb. 3, when infections were rapidly spreading in China.

The Shanghai index is headed for its worst month since May 2019, and its largest weekly fall since last April.

10-year Chinese treasury futures added 0.2% while the onshore yuan was 0.09% weaker at 7.0111 per dollar at 0445 GMT.

In Hong Kong, the Hang Seng Index dropped 2.5% to early-December lows.

“We may have underestimated the impact of the virus outbreak outside China,” said Yan Kaiwen, analyst at China Fortune Securities in Shanghai.

“While China has managed to bring the virus outbreak under control quickly, there is no gurantee that other countries can manage to do to do the same,” he said.

New infections in mainland China fell on Thursday to the slowest since Jan. 23, the country’s National Health Commission said.

But the economic damage has already been done.

Activity in China’s manufacturing sector likely shrank at the fastest pace since the global financial crisis in February as the outbreak suspended large movements of goods and people in most parts of the country, according to a poll by Reuters.

However, analysts at Everbright Securities said the shock from the global rout will likely be short term, as Chinese growth becomes increasingly tied to Beijing’s policy support.

HSBC Global Research tipped infrastructure-related stocks to benefit from a likely increase in local government funding, while telecoms shares would continue to benefit from the country’s push for 5G technology.

Reporting by Luoyan Liu; Writing by Noah Sin; Editing by Simon Cameron-Moore

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