SHANGHAI'S key stock index dropped in morning trade as fears over growing inflationary expectations spread.

The benchmark Shanghai Composite Index fell 0.79 percent to 2,594.72 points. Turnover stood at 46.7 billion yuan (US$7.3 billion).

"Global liquidity will remain abundant in the short term and imported inflationary pressures have not eased much," Zhang Ping, head of China's top economic planning agency, said during a bimonthly session of the National People's Congress Standing Committee yesterday.

Other factors keeping consumer prices high included rising production costs, seasonal supply shortages of farm produce and the possibility of natural disasters, Zhang said.

Banks fell despite earnings reports showing that China's four largest banks made a profit of 339.3 billion yuan, larger than the combined profits of the 14 largest banks in US and Europe.

Industrial and Commercial Bank of China lost 1 percent to 4.14 yuan, after reported profits rose nearly 30 percent from a year earlier.

The tourism sector gained on speculation that the coming Mid-Autumn Festival national holiday will boost their earnings. China CYTS Tours Holding Co rose 2.7 percent to 15.93 yuan.

Source:shanghaidaily