SHANGHAI - Stocks on the Chinese mainland fell, erasing the benchmark index's gains this year.

The decline came on speculation China's government will announce increases in interest rates and bank reserve requirements to curb inflation.

The central bank announced after the market closed that it will raise the reserve requirements by 50 basis points, starting from Jan 20.

Jiangxi Copper Co and Aluminum Corp of China Ltd led declines for material producers after metal prices slumped and the China Securities Journal said the government may add price controls to tame rising consumer prices.

"There is speculation that the central bank will further tighten monetary policies by raising either interest rates or reserve requirements," said Luo Bin, general manager at Shanghai Mingyu Xiaoyang Investment Management Co, which manages the equivalent of $60 million. "I don't see any good opportunity for stocks unless there's an easing."

The Shanghai Composite Index fell 1.29 percent to 2791.34 at the 3 pm close on Friday. The gauge lost 1.7 percent during the week, the most since the week ending Dec 24. The CSI 300 Index slid 1.57 percent to 3091.86.

A gauge of financial companies in the CSI 300 including banks dropped 1.1 percent. Industrial Bank slid 2.65 percent to 26.09 yuan ($3.95). Bank of Beijing fell 1.89 percent to 11.92 yuan.

China's benchmark money-market rate advanced the most in more than two weeks on speculation reserve requirements for lenders will be increased again to combat inflation.

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The seven-day repurchase rate, which measures lending costs between banks, had its biggest gain since Dec 29 after Li Dongrong, assistant governor of the People's Bank of China, said the nation is facing pressure on inflation and inflows. His comments came in a speech published on the central bank's website on Friday.

"We expect continued decisive monetary tightening, via reserve-requirement hikes as well as rates, in the first half," said Dariusz Kowalczyk, an economist at Credit Agricole CIB in Hong Kong. "Emphasis is likely to be on liquidity management, and reserve-requirement hikes are likely any time."

The repo rate advanced 22 basis points to 2.56 percent on Friday, according to a daily fixing published by the National Interbank Funding Center.

"Investors expect inflation to be still at a high level in January and in the coming months," Shanghai Mingyu's Luo said.

The materials index in the CSI 300 dropped 3.4 percent, adding to the weekly loss of 5.9 percent, the most among the 10 industry groups. Jiangxi Copper slid 8.04 percent to 38.57 yuan. Yunnan Copper Industry Co slid 7.49 percent to 24.70 yuan. Aluminum Corp of China fell 1.97 percent to 9.97 yuan.

Cosco Shipping Co slid 3.03 percent to 7.68 yuan. About 380 million shares will become tradable on Tuesday, the company said.

Bloomberg News