China Stocks Slide 2.9% on Loan Probe Jitters

China's stock market fell sharply on Tuesday, with real estate shares leading the drop, as reports that the banking regulator was investigating a jump in companies' bill financing made investors nervous.

The Shanghai Composite Index SSEC slid 2.93 percent to 2,319.441 points in hectic trade. It had risen 2.96 percent to a five-month high on Monday, bringing its gains this year to 31 percent.

Data last week showed new yuan lending soared to a record 1.62 trillion yuan ($237 billion) in January. But 39 percent of the new loans were in the form of short-term discounted bill financing, up from an average 13 percent in 2008.

Some analysts believe much of the money raised via bill financing went to chase short-term profits in the stock market, rather than into long-term investment in companies' operations as authorities hope.

The banking regulator is investigating the jump in discounted bill financing, fearing it could create excessive risks, the China Business News reported on Monday.

Vanke, China's biggest listed property developer, tumbled 5.05 percent to 8.08 yuan amid concern that authorities could become less willing to cut interest rates further if they felt that the discounted bill and stock markets were overheating.