Asia shares fall on China squeeze

It was the fifth time this year that the central bank had made such a move, and came after Chinese inflation hit a two-year high of 4.4%.

But Zhong Jiyin, an economist with the Chinese Academy of Social Sciences, writing in the China Daily said recent increases in banks' reserve requirement ratio would not be enough to reverse excessive liquidity.

Writing in the China Daily, he said that the government needed to raise interest rates by another 200 basis points (two percentage points) to try to curb inflation.

The Japan's Nikkei share index ended Tuesday down 188.95 points at 9,937.04, after touching a five-month closing high of 10,125.99 on Monday.

Elsewhere in Asia. the Australian S&P/ASX200 index shed 0.7% to 4,587.10.

Benchmark indexes in India, Singapore, Indonesia, Thailand and the Philippines were also lower, although South Korea's Kospi index was up 0.3% to 1,901.64.

On Monday in the US, the Dow Jones index had closed down 39.51 points, or 0.36%, at 11,052.49.
'Contain inflation'

Rising prices in China are, at present, mainly restricted to food.

But analysts think price pressures could spread to other areas, unless China increases interest rates and tightens credit to deal with inflation.

"There is a little nervousness about how hard the policymakers will have to slam on the brakes to contain inflation," said David Cohen, an economist with Action Economics in Singapore.

And Alfred Chan, chief dealer at Pearl Investment in Singapore, said: "Investors are dumping shares because they are afraid of rate increases down the road.

"Banks are not going to be lending money as liberally as they wish because the government has capped lending for next year."

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