Shanghai Composite Drops 5.3% as Nikkei Ends Down

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Worry about a slowing economy and a future lack of credit in the market caused the Shanghai Composite to be crushed — down 5.3%. Related worries, which also concerned those about the possible end of QE3, dropped the Nikkei by 1.66%, and Europe opened flat. Data on the German economy is due out later today.

According to MarketWatch:

Short-term interbank interest rates in Shanghai, which hit record highs on Thursday, extended their drop from levels seen on Friday but remained above the 6% level Monday, according to Dow Jones Newswires. This fed worries that the People’s Bank of China may keep those rates at a high level.

“The worst of the liquidity crunch may now be behind us, but we believe interbank rates will stay at elevated levels until at least the second week of July,” said Standard Chartered China economist Stephen Green.

“The longer this policy lasts, the more concerns about banking-sector stability will be raised. It may also cause slower credit growth in the second half,” he said.

However, the interbank rate may not matter much if data from China point to slowing of GDP growth at 6% — or less.