SHANGHAI - China's benchmark stock index slipped on the first trading day of the Lunar New Year, a move that seemed to bear out analysts' forecasts of a continued downtrend, at least in the first half.

Monday's drop came as a new wave of unlocked A shares, with a combined value of 44.4 billion yuan ($7.04 billion), hit the market.[Photo/China Daily]

The Shanghai Composite Index fell 34.08 points, or 1.47 percent, to 2285.04. The Shenzhen gauge fell 2.02 percent.

The loss signaled that investors had shrugged off some positives, including the granting of the 20 billion yuan ($3.16 billion) in quotas for the pilot renminbi qualified foreign institutional investor (RQFII) program by the foreign exchange regulator.

The Shanghai index jumped to 2324.49 points at the opening but quickly retreated to 2,291. It climbed back to 2300 before sliding to close at 2284.29.

Monday's drop came as a new wave of unlocked A shares, with a combined value of 44.4 billion yuan, hit the market.

Topping the scale of unlocked shares was Shandong Gold Mining Co Ltd, with 22.4 billion yuan in non-tradable shares released. The shares closed with a gain of 2.38 percent to 34.87 yuan.

Monday's results showed disappointment that an anticipated cut in banks' reserve-requirement ratio hadn't yet materialized, according to Gui Haoming of Shenyin & Wanguo Securities Co Ltd.

"The central bank injected a large amount of funds before the Lunar New Year holiday, amid speculation that a cut in banks' reserve-requirement ratio was imminent. But after the 14-day reserve repurchase contracts expire, there is no way to guarantee liquidity," Gui said.

The pre-holiday rally was boosted by expectations that more liquidity would be released to encourage lending, which has been hurt by a credit squeeze.

The RQFII program, launched in December to widen investment channels for overseas yuan funds on the mainland, allows qualified investors to invest yuan-denominated funds raised in Hong Kong in the mainland securities market within a permitted quota.

Twenty-one institutions, including nine funds and 12 securities houses, were granted a total of 20 billion yuan in investment quotas. The State Administration of Foreign Exchange might expand the program.

"Though the move indicates further capital infusions, it takes time for the market to respond," said Fu Jia, an analyst with Singapore-based Temasek Holdings Co Ltd.

Asian shares fell in reaction to the slower-than-expected US recovery and an uncertain debt-swap deal for Greece on Monday. Japan's Nikkei was down 0.55 percent while the Hang Seng Index fell by 1.66 percent.

A sustained rebound in Chinese stocks requires that Europe contain its sovereign debt crisis properly. Thus, "China must adjust its economic structure and boost domestic consumption to offset an export slowdown," said Lin Hu, a researcher with GF Securities Co Ltd.

Given these conditions, Hu recommended consumer-staple companies and high-tech and emerging industries.

The US Federal Reserve Board has pledged to keep interest rates low till mid-2014, a move that is likely to trigger a new round of "hot money" inflows.

"In the long run, there is no consensus whether it will drive up the index or add more volatility," said Chen Yong from Huatai Securities Co Ltd.