China Stocks Drop The Most in Two months on Inflation Fears

China’s stocks fell the most in two months after the government said taming inflation is “critical,” signaling to investors that more policy tightening measures may be ahead even as economic growth slows.

“China Shenhua Energy Co., the nation’s biggest coal company, and Yanzhou Coal Mining Co. plunged more than 5 percent after Goldman Sachs Group Inc. said the government may cap thermal coal prices to help power producers. Jiangxi Copper Co. and PetroChina Co. led a drop for commodity producers as metal and oil prices extended declines. China Citic Bank Corp. fell the most in six months after the China Securities Journal said the central bank will raise lenders’ reserve requirements this month.

“Curbing inflation is the top priority for the government,” said Wu Kan, a fund manager at Dazhong Insurance Co., which oversees $285 million. “China’s economic growth has shown signs of a slowdown but that won’t change the government’s intention to cool inflation with more monetary measures.””

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