Asian Markets Fall as China Plunges Nearly 7 %

Asian markets sank Monday as Chinese stocks plunged nearly 7 percent and Japanese shares weakened after the country's opposition party came to power in a landslide victory. European stocks were mixed in early trade.

In Shanghai, the main index plummeted 6.7 percent to 2,697.70, adding to a nearly 3 percent decline on Friday. Hong Kong's Hang Seng lost 1.9 percent. Tokyo's Nikkei 225 stock average lost 41.61 points, or 0.4 percent, to 10,492.53 after jumping over 200 points earlier in the day.

Renewed selling in mainland Chinese shares reflected the growing unease among investors about government measures to restrict the lavish bank lending that's helped send markets surging this year. Analysts also pointed to concerns about a flood of new shares as lockup periods expire and more initial public offerings come to market. The combination would mean less money to chase more stock.

Lan Xue, managing director and head of China research for Citigroup in Hong Kong, said China's markets are strongly linked to domestic liquidity, and July and August were shaping up as scaled-back periods for lending.

"This is very much contributing to the weakness in the A-share market," she said, referring to mainland Chinese shares. "Whether we'll see more declines depends on sentiment and liquidity the next few months."

In Japan, investors tread cautiously after the Democratic Party of Japan swept to power in national elections over the weekend amid frustrations with the ruling party as the world's second-economy emerges from its worst downturn in decades.

After spiking in the morning, stocks fell as initial enthusiasm over the opposition's victory quickly gave way to concerns about its economic policies and the surging yen. The Democrats are largely untested and there are worries their programs would increase Japan's already ballooning debt, analysts said.

Elsewhere, Korea's Kospi was down 1.1 percent and India's Sensex dropped 1.7 percent despite Asia's third-largest economy picking up pace in the April-June quarter. Australian shares were down 0.2 percent.

As trading got under way in Europe, Britain's FTSE 100 added 0.8 percent, but benchmarks in Germany and France were off by about 0.5 percent. With Wall Street futures lower, U.S. markets were poised for more losses on Monday. Dow futures were down 58, or 0.6 percent, at 9,478 and S&P futures shed 5.9, or 0.6 percent, to 1,021.50.

The heavy selling in China, where quick economic growth and soaring equity prices have helped underpin optimism among Asia investors this year, weighed on sentiment across the region.

Chinese share prices rose more than 80 percent earlier this year before falling back in mid-August. The months long rally coincided with unprecedented lending aimed at fighting off the economic downturn.

Many in China believe that a big chunk of the lending found its way into property and share markets, fueling bubbles in asset prices, though the extent to which such funds were illicitly diverted into speculative investments remains unclear.

On Friday, Wall Street ended the week on a down note, with the Dow falling 36.43, or 0.4 percent, to 9,544.20 in somewhat quiet trade.

The Standard & Poor's 500 index fell 2.05, 0.3 percent, to 1,027.76, while Nasdaq composite index rose 1.04, or 0.1 percent, to 2,028.77.

Crude oil prices dropped in Asia, with the benchmark contract for October delivery lower by $1.14 at $71.62 a barrel. The contract rose 25 cents on Friday.

The dollar fell to 93.02 yen from 93.42 yen. The uro traded lower at $1.4288 from $1.4306.

(Jeremiah Marquez , The Associated Press)