China shares slump after state restricts home loans

Leading Chinese shares have slumped after the government pushed through measures designed to rein in booming house prices.

The main Shanghai Composite index plunged 150 points, or 4.8%, to close at 2,980.30.

The new rules included restrictions on mortgages to people looking to buy a third home.

The government has already introduced restrictions on bank lending, also designed to cool economic growth.

'Blunter instrument'

House prices have been rising fast in China - urban property prices in March grew at their fastest rate in over four years - and the government has expressed concerns that such rises are unsustainable.

As a result, mortgage rates have been raised and a new sales tax on homes has been introduced.

However, the government felt that further measures were necessary.

"This time, it seems the government determination to cool home prices is bigger than before," said Mao Nan at Oriental Securities in Shanghai.

However, some analysts were not convinced the latest rules would have the desired effect.

"I have very strong doubts that [the measures] are going to be enough to the get the results they want in terms of slowing down the property market, and eventually they will have to use blunter instruments," said Brian Jackson at the Royal Bank of Canada.

China's economy grew at an annual rate of 11.9% in the first three months of this year, higher than analysts had expected.

Some of this growth was down to a a 4tn-yuan ($586bn; £384bn) government stimulus plan to boost the domestic economy, announced at the end of 2008.

This helped China to emerge relatively unscathed from the global economic downturn.

The government is now keen to stop the economy overheating and prices from rising too fast.

excerpted from BBC news