The mainland's main stock index tumbled more than 2 percent Friday, ending June with its biggest monthly loss since May 2005, because of fear that government policies would suck funds from the market.

The stock market lost 1,118.1 billion yuan in market value last week, caused by deep slumps. Total market value of all securities listed on the two exchanges stood at 16,623.2 by the closing of last Friday, down 6.7 percent than a week before on June 22.

The stock market by last Friday has been ripped off 2,400.3 billion yuan or 12.7 percent, from one month earlier, or May 29, the day before the stamp tax rate was lifted to 3 percent overnight.

Investor confidence was also damaged. Last Thursday, the new A-share accounts opening hit a new low for three months at 107,991. New accounts of B shares and mutual funds also dropped.

New Account Opening
Source: China Securities Depository and Clearing Co Ltd

Date	A share	B share	Fund	Total
2007-06-25	156,151	1,020	77,653	234,824
2007-06-26	129,713	1,181	51,850	182,744
2007-06-27	115,143	1,107	42,782	159,032
2007-06-28	107,991	1,014	38,312	147,317

The Standing Committee of the National People's Congress approved Friday US$200 billion worth of special yuan treasury bond issues to fund China's new overseas investment agency. It also authorized the State Council, or Cabinet, to cut or scrap the 20 percent tax on interest earned from bank deposits.

Last Friday, Yi Gang, assistant governor of the central bank said the People's Bank of China will pay US$200 billion to buy the special bonds of 1.55 trillion yuan from the Ministry of Finance (MOF). The central bank will recognize the purchase once and for all in its balance sheet.

Then MOF will invest US$200 billion, the exact amount paid by the central bank, to the new State foreign exchange investment company. The central bank, on the other side, will issue the 1.55 trillion special bonds, in different times, to the market to control money supply and reduce liquidity.

The issuance of the special bonds is categorized to a "neutral" macro economic policy, and will bring moderate effects to the capital market, said Yi on a forum Saturday. Yi said the central bank will issue the bonds in times based on the growth of money supply, just like the other central bank bills that drain in capital from the market. And top priority will be given to the stability of the financial markets, Yi added.

Analysts agreed and said the market-oriented monetary policy will have less "shock" influence than the fiscal ones such as the stamp tax hike.

Sources from MOF said along with the growing gap between deposits and loans, and the widening of investment channels by insurers and the social security fund, there is an increasing demand for T-bonds. The large amount of the special T-bonds to be issued by the central bank in times, may meet the demand from financial institutions for T-bond investment.

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