Shanghai - Stocks on the Chinese mainland fell to the lowest level in almost nine months on Monday. That's after Nomura Holdings Inc forecast the Chinese central bank will raise interest rates and Credit Suisse Group AG said the country is heading for a "sluggish landing".

Industrial and Commercial Bank of China Ltd and Bank of China Ltd(ICBC) paced declines for lenders after Credit Suisse cut its rating on banking shares to "underweight". PetroChina Co lost 1 percent as crude traded near a four-month low.

Poly Real Estate Group Co, China's second-largest developer, rose to a two-month high on speculation the government won't intensify housing curbs after prices cooled in some cities. "The big picture is that there's a capital crunch for the market after all these government tightening measures," said Zhang Ling, general manager at Shanghai River Fund Management Co. "It's probably the worst time for stocks now."

Related readings:  Increase in interest rates likely  Property stocks decouple from home prices  The long and winding road to recovery  Taking inflation by the horns

The Shanghai Composite Index, which tracks the bigger of China's stock exchanges, dropped 21.6 points to 2621.25 at the 3 pm local time close, the lowest since Sept 29. The CSI 300 Index fell 0.6 percent to 2874.90.

The Shanghai Composite has slumped 14 percent from this year's high on April 18 on concern government measures to cool inflation will slow economic growth. The central bank has raised reserve requirements 12 times and interest rates four times since the start of last year. The stock index has lost 6.8 percent this year, extending the 14 percent retreat in 2010.

China is likely to raise rates within the next 10 days as price pressures encourage the government to end the longest pause since increases began in October, Nomura said.

The world's second-biggest economy is maintaining momentum and "inflation is still high", Nomura economist Sun Chi said from Hong Kong on Monday. Sun reaffirmed a forecast for an increase by the end of June.

Inflation is likely to grow 5.5 percent in June, which is expected to be the fastest this year, the Shanghai Securities News reported over the weekend, citing Zheng Xinli, deputy director of the China Center for International Economic Exchanges.

Inflation for the whole year is estimated at 4.8 percent, Zheng said at a conference on Sunday, according to the newspaper.

The Shanghai Composite is valued at 12.2 times estimated earnings for this year, compared with a five-year average of 18.9, according to weekly data compiled by Bloomberg.

ICBC, the nation's biggest listed lender, dropped 0.7 percent to 4.26 yuan (66 cents). Bank of China, the third-largest lender, fell 1.3 percent to 3.05 yuan.

Data from the People's Bank of China show that lenders face a larger- than-expected "credit overhang", Credit Suisse analysts wrote in a report. They cut their ratings on banking shares to "underweight" from "overweight", while increasing utilities to "overweight" from "market weight".

The analysts also lowered their 12-month forecast for Hong Kong's Hang Seng China Enterprises Index to 15000 from 17500, and reduced the target for the Shanghai A-Share Stock Price Index to 3000 from 3650. Their estimate for the MSCI China Index was cut to 76 from 89, according to the report.

PetroChina, the nation's biggest oil company, retreated 1 percent to 10.66 yuan. China Oilfield Services Ltd, the drilling unit of the nation's largest offshore oil producer, retreated 1.9 percent to 16.46 yuan. Oil for July delivery fell as much as 1.7 percent to $91.42 a barrel in electronic trading in New York on Monday.

Bloomberg News