Most Chinese stocks fell on Thursday after Premier Wen Jiabao warned that authorities would tighten policy further to prevent the economy from overheating. But speculators continued pushing up many small-capital shares.
The Shanghai Composite Index lower, dropping as much as 2% at one stage in the Thursday session.
Losing Shanghai stocks outnumbered gainers by 507 to 354. Turnover in Shanghai A shares was 99.2 billion yuan ($13.0 billion), down from Wednesday morning's 116.9 billion, indicating the warning had made some investors more cautious.
In a statement late on Wednesday after a regular cabinet meeting, Wen said Beijing would "appropriately tighten" monetary policy and take other steps to address mounting upward pressure on prices and excessive liquidity in the financial system.
An interest rate hike in coming weeks had already been expected, so analysts said stocks were unlikely to fall steeply. But Wen's warning added caution to the market after a big rise over the past seven days.
In addition, the index on Wednesday came within 4% of last month's record high -- a level at which authorities hiked the stock trading tax to cool the market. Some investors have started to worry about more such steps by the government if the market continues climbing rapidly.
"Premier Wen's speech about preventing the economy from overheating increased concern that the government will cool down the economy, including the stock market," said Tang Zhenbing, analyst at Hongyuan Securities. "There's also a technical need for a pull-back, since the stock index has rebounded faster than expected and has already been on a seven-day rising streak."
Other analysts, however, said any pull-back would probably be limited to 4,000 points, as fund flows into stocks from new mutual funds would prevent any extended decline.
Heavily weighted financial stocks were weak on Thursday, with Industrial & Commercial Bank of China sinking after a 4.35% gain Wednesday. But many speculative stocks continued surging, with steel refiner Longjian up over 6% after a huge 10% jump Wednesday.
Special category stocks -- companies which have posted losses for the past two years -- were also hot, with seven of them gaining their 5% daily limits. Qinling Cement jumped 5%.
Metal stocks were strong, as Baoji Titanium and Nanshan Alumninium both surged.
This may have been due to expectations that A shares of aluminum giant Chalco, now suspended pending progress in restructuring talks with affiliate Baotou Aluminum, could rise sharply when they eventually resume trading.
Chalco's Hong Kong-listed H shares soared over 10% after Goldman Sachs upgraded them to buy from neutral, citing an acceleration in aluminum demand.