China's share prices dropped for the second consecutive trading session yesterday with the benchmark Shanghai Composite Index down 2.36 percent and banks and blue chips leading the fall.

Analysts said the losses came amid speculation that the government would introduce further cooling measures after it announces the economic data of the first half of 2007 later this week.

China's consumer inflation in June was expected to exceed four percent, the highest in 32 months and much higher than the target of three percent set by the government for the year, the China Securities Journal reported on yesterday.

The key Shanghai index, which covers both A and B shares listed on the Shanghai Stock Exchange, lose 92.48 points to finish at 3,821.92 points. The index traded between 3,931.87 and 3,820.57 points.

The Shenzhen Component Index on China's smaller Shenzhen Stock Exchange fell 3.79 percent, or 485.23 points, to 12,331.19 points.

The Hushen 300 Index reflecting the performance of China's two stock exchanges closed at 3,697.97 points, down 3.2 percent, or 122.16 points, from the previous close.

Only 246 shares of the more than 1,400 listed firms on the two bourses reported gains.

The worries dampened investor enthusiasm and lowered the turnover of China's two equity markets.

Meanwhile, the four upcoming initial public offerings, including the Bank of Nanjing and Bank of Ningbo, locked more than 2 trillion yuan (264.3 billion U.S. dollars) in capital, contributing to the lower turnover.

The combined turnover stood at 91.5 billion yuan (12.1 billion dollars), slightly higher than the 84.4 billion yuan on Friday, but sharply lower than the daily level of more than 200 billion yuan in May.

The likelihood was high of a rise in interest rates to curb the widely estimated rapid economic growth and higher inflation in the first half, according to Huatai Securities.

China's central bank has issued 101 billion yuan worth of three-year bills to commercial banks on Friday to rein in lending.

Dong Dezhi, an analyst with the global financial market department of Bank of China, said interest rate hikes had always come after the issuance of central bank bills since May 2006

All the banks reported losses except the Citic Bank, which closed flat at 9.05 yuan. The Industrial and Commercial Bank of China slid 1.86 percent to 5.27 yuan and the Bank of China fell 1.95 percent to 5.03 yuan.

Other blue chips also led the decline. The Citic Securities, the country's largest publicly traded brokerage, was down 4.97 percent to 52.98 yuan. The China Petroleum and Chemical Corporation, Asia's largest oil refiner, lost four percent to 12.71 yuan.

Baoshan Iron and Steel, the nation's largest steel producer, fell 3.96 percent to 10.91 yuan, and China Vanke, the nation's largest real estate developer, declined 3.29 percent to 20.56 yuan.

The insurance shares, however, advanced. Analysts said the interest rate hikes would help to expand their earnings as some of their assets were deposited in banks.

China Life, the country's largest life insurer, gained 0.71 percent to 46.86 yuan, and Ping An Insurance rose 3.36 percent to 82.19 yuan.

The A share index on the Shanghai Stock Exchange slid 2.35 percent to 4,009.54 points and the B share index on the same market fell 3.44 percent to 269.68 points.

The A share index on the Shenzhen Stock Exchange declined 3.73 percent to 12,994.23 points and the B share index lost 1.2 percent to 5,684.43 points.