A FAW Car Co booth at an expo in Beijing. The automaker lost 4.4 percent to 10.56 yuan ($1.65) in Shenzhen, the lowest close since March 13, 2009. Dong Ning / For China Daily

SHANGHAI - Stocks on the Chinese mainland fell for a second day after foreign direct investment grew at the slowest pace in three months, boosting speculation that Europe's debt crisis and tighter monetary policies are stalling global economic growth.

FAW Car Co led declines by automakers after the Economic Observer said an industry group cut its 2011 domestic vehicle sales growth forecast.

Inner Mongolia Baotou Steel Rare-Earth Hi-Tech Co retreated to the lowest level in eight months after announcing a production halt amid weakening metals demand. Poly Real Estate Group Co, the second-biggest developer, slid 2.5 percent on concern that home prices will decline further as the government maintains real estate curbs.

"The bearish sentiment won't change and all news will be interpreted in a negative way," said Tu Jun, a strategist at Shanghai Securities Co. "There's still room for the central bank to keep its monetary policy tight."

The Shanghai Composite Index lost 6 points, or 0.3 percent, to 2377.51, extending Tuesday's 2.3 percent slump. The CSI 300 Index slid 0.4 percent to 2583.08.

The Shanghai index has lost 15 percent this year, driving down estimated price earnings to 11 times, compared with the record low of 10.8 times set on Oct 10, according to data compiled by Bloomberg. China has raised interest rates three times in 2011 and ordered lenders to set aside a bigger portion of deposits to curb inflation that's near a three-year high.

A gauge of consumer stocks in the CSI 300 dropped 1.4 percent, the most among the 10 industry groups.

FAW lost 4.4 percent to 10.56 yuan ($1.65) in Shenzhen, the lowest close since March 13, 2009. Anhui Jianghuai Automobile Co fell 1.7 percent to 7.62 yuan.

The China Association Of Automobile Manufacturers cut its forecast for vehicle sales growth to as much as 3 percent this year, from 5 percent, the Economic Observer said. It was the second time that the association cut the forecast, it said.

Central bank adviser Xia Bin said that China's growth is "sound" and he doesn't believe that the government needs to implement any "major" stimulus measures.

He spoke in an interview in Beijing on Wednesday after the government announced Tuesday that GDP growth slowed to 9.1 percent in the third quarter, the slowest pace in two years.

The central bank should stick to its "prudent" monetary policy, he said.

Foreign direct investment in China grew at the slowest pace in three months in September, as companies pared spending amid concerns that the global recovery is faltering.

Foreign investment gained 7.9 percent to $9 billion, the Ministry of Commerce said in a statement. That compared with expansion of 11.1 percent in August and 19.8 percent in July.

A leading economic index for China rose 0.5 percent to 159.5 in August, the Conference Board, a New York-based research organization, said on its website on Wednesday.

"The latest data won't trigger any sudden change in monetary or fiscal policy, but looking ahead the overall direction is likely to be easing," said Yao Wei, an economist at Societe Generale SA and the only one of 22 analysts in a Bloomberg News survey to predict the GDP number. "Consumption has held up quite well," said Yao.

Chinese stocks will continue to be volatile in the next 12 months with investors selling into rallies, according to BNP Paribas SA.

BNP Paribas recommends Chinese resource producers and "brand" consumer companies, Dorris Chen, head of China research at BNP, said in a report to clients.

Poly Real Estate lost 2.5 percent to 8.71 yuan. Gemdale Corp slid 2.2 percent to 4.55 yuan.

Home prices may fall up to 20 percent and it may take several more months before China starts relaxing tightening policies, according to a report from Societe Generale's Yao.

Inner Mongolia Baotou fell 4.7 percent to 45.27 yuan, the lowest since Feb 14. The rare-earth producer cited falling prices and weak demand for the production halt that took effect on Wednesday, the company said in a statement to Shanghai's stock exchange.

Bloomberg News

(China Daily 10/20/2011 page16)