Banking and energy stocks dragged China’s market down on Thursday morning, as investors were left unimpressed by the latest measures taken by Beijing to bolster a slowing economy.

Late on Wednesday, China’s state council, or cabinet, had encouraged local governments to maximise spending this year or face cuts to their 2016 budgets.

The Cabinet also vowed to liberalise the consumer credit market, and support cross-border e-commerce.

Debt swaps

Separately, China’s finance ministry said it has approved a second batch of local government debt swaps worth 1 trillion yuan ($161.2 billion), doubling the size of the existing swap programme announced in March.

The widely expected moved failed to offer fresh stimulus to the market, though the scheme would improve banks’ balance sheets.

Banks, however, remained weak, weighed down by MSCI’s decision not to include mainland stocks into its emerging market benchmark index.

The sector was seen as potentially a major beneficiary if MSCI had decided to include mainland shares.

The CSI300 index fell 0.1 per cent to 5,301.98 points at the end of the morning session, while the Shanghai Composite Index lost 0.2 per cent to 5,096.37 points.

But the Hong Kong market rebounded on Thursday.

The Hang Seng index added 0.9 per cent to 26,923.87 points, while the Hong Kong China Enterprises Index gained 0.8 per cent to 13,730.43.

MERS outbreak

Growing fears in the region over the spread of Middle East Respiratory Syndrome (MERS) following more deaths in South Korea had prompted a sell-off on Wednesday afternoon, after media reports of a suspected MERS case in Hong Kong, analysts said.

Controller of the Center for Health Protection Leung Ting-hung told a press briefing on Thursday morning that no confirmed case of MERS has been found in Hong Kong so far, official Xinhua news agency reported.

Greek debt crisis, Fed rate hike

Investor interest in Hong Kong stocks have been curbed recently by the deadlock in Greek debt negotiations, an anticipated US rate hike later this year, and a politically sensitive local vote next week.

Analysts have said that the Greek drama reduces investors’ risk appetite, while a possible rate increase by the Federal Reserve would attract money away from Hong Kong.

On Thursday, the index measuring price differences between dual-listed companies in Shanghai and Hong Kong stood at a six-year high of 140.39, meaning mainland stocks are 40 percent more expensive.

Chinese milk maker Bright Dairy & Food Co Ltd soared 10 per cent, up maximum for the third straight day, and just shy of its all-time high level after announcing a deal to buy control of Israeli food maker Tnuva from Bright Dairy’s parent.

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