Chinese Shares Decline As Optimism Over Spain Bailout Fades

Stock markets in China and Hong Kong declined Tuesday, following losses on the Wall Street overnight as the early optimism over the Spanish bailout plan faded.

Hong Kong's Hang Seng declined 0.62 percent or 117.52 points to 18,836.11 and Chinese Shanghai Composite fell 0.43 percent or 9.99 points to 2,295.86.

Stock markets in the U.S. and Europe failed Monday to maintain early rallies on the 100 billion euro Spanish aid as the bailout package failed to calm fears over the euro area debt crisis. All the three major U.S. stock indices declined more than 1.10 percent.

Sentiment has dampened amid concerns that the bailout of the Spanish banks by the euro zone may not be enough to rescue the country from the financial crisis and will do little to contain the debt crisis in the region.

Spanish 10-year bond yields climbed above 6.5 percent Monday on concerns about the impact the package will have on public debt. The aid is more than double the 40 billion euros of the new capital that the International Monetary Fund had estimated the banks needed and could add up to 10 percentage points to Spain's debt ratio.

This weekend's bailout news does not imply a serious willingness on the part of Europe to tackle its financial crisis but instead implies an act of desperation to delay the inevitable, which is the failure of Spanish banks, Jeff Sica, president of SICA Wealth Management, told Reuters.

The Chinese central bank's May data showed that new bank loans for the month were up sharply compared with the previous month, suggesting that monetary policy easing and faster government approval of investment projects have gained traction and bolstered the outlook for developers. Gemdale Corp gained 2.27 percent and Poly Real Estate Group rose 3.06 percent in Shanghai.

In Hong Kong, Esprit Holdings Ltd declined 0.89 percent and HSBC Holdings Plc fell 1.16 percent while China Southern Airlines climbed 6.65 percent in Hong Kong after announcing Tuesday that it was raising up to 2 billion yuan through a private share placement to its corporate parent to help pare debts.