Asia: Stocks slide as China tightens collateral rules for short term loans

Asian stocks declined as China tightened collateral rules for short-term loans and the Japanese yen strengthened.

Lower rated bonds can no longer be used as collateral for some short-term loans in China. The decision prompted a sell-off in riskier debt that extended to government notes and stocks.

China’s clearing agency for exchanges has stopped accepting new applications for repurchase agreements that involve bonds rated below AAA or sold by issuers graded lower than AA, according to a statement.

A securities regulator in China voiced worries over fast growing risks in margin trading and short-selling businesses on Monday, the Securities Times reported citing a source.

The Shanghai index plunged 5.43% at close while the Hong Kong’s Hang Seng index dropped 2.34%.

Japan’s Nikkei finished down 0.68% as the yen strengthened against the dollar to hurt exports.

Also weighing on stocks was a another drop in crude even as the head of Kuwait Petroleum said prices as likely to remain around $65 a barrel for the next six to seven months until the global economy recovers or OPEC changes its production policy.

Company-wise China’s four largest lenders including Industrial & Commercial Bank of China slipped, while PetroChina Co. slumped.