China’s stocks fall most in three weeks on weakening yuan

Chinese stocks dropped the most in three weeks on Monday, led by industrial companies and small-cap shares, amid concerns that a weaker yuan will limit prospects for further stimulus and that State-backed funds will sell shares.

The Shanghai Composite Index declined 0.75 percent at the close. Beijing Originwater Technology Co posted its biggest loss since February.

The ChiNext gauge of small-cap startup companies slid the most since July 27. Offshore Oil Engineering Co retreated 2.5 percent in Shanghai as crude oil fell in New York.

The yuan weakened to its lowest level in almost two weeks as increasing speculation that the Federal Reserve will raise interest rates this year drove up the dollar.

China’s central bank has kept borrowing costs on hold since October. China Securities Finance Corp and other

the decline in the benchmark Shanghai Composite Index

government-linked funds sold bank shares after the nation’s benchmark equity index jumped to a sevenmonth high, market sources said.

The move by CSF, which was armed with more than $480 billion to prop up share prices during last summer’s equity market rout, may signal confidence among Chinese policymakers that the $6.5 trillion market is growing strong enough to stand on its own.

CSF’s biggest holdings at the end of last year were in financial companies, whose heavy weightings in benchmark indexes make them prime candidates for government intervention.

“The national teammay be seeking to prevent a stock bubble,” saidZhangHaidong, chief strategist at Jinkuang InvestmentManagement.