SINGAPORE / SHANGHAI- Stocks on the Chinese mainland fell to the lowest level since March 2009 on concern the European debt crisis will curb exports and that a potential cash crunch before the Chinese New Year holidays may boost lending costs for small companies.

The Shanghai Composite Index, slid 20.94 points, or 1 percent, to 2148.45. The CSI 300 Index slumped 1 percent to 2276.39.

China Cosco Holdings Co, Asia's largest shipping line, dropped 4.4 percent after Luxembourg's prime minister said the European Union is facing a recession of unknown scope.

Ufida Software Co plunged 8 percent, leading declines for technology stocks, the worst performing industry.

Shanghai Pudong Development Bank Co paced gains for lenders after the central bank refrained from selling three-month bills and investors speculated the central bank will cut lenders' reserve requirements this month.

"Small-cap shares are falling as they had risen considerably before; it's a rotational change," said Wu Kan, a fund manager at Dazhong Insurance Co, which oversees $285 million.

"Investors are probably keen on steadier shares like big-cap companies amid the economic downturn."

The Shenzhen Stock Exchange will oversee the initial review of refinancing plans of ChiNext companies, Caixin Online reported, citing unidentified officials. The Shenzhen Composite lost 3.5 percent, while the ChiNext index of start-up companies plunged 5.7 percent.

Gauges of technology and healthcare companies in the CSI 300 dropped more than 3 percent, the most among industry groups.

Speculation the securities regulators are "looking to decentralize oversight on financing plans may have had a psychological impact on investors", said Wu.

"If the Shenzhen exchange were to be in charge of refinancing for GEM-listed stocks, there would be less certainty."

China Cosco lost 4.4 percent to 4.30 yuan.

The Shanghai Composite fell 1.4 percent on the first trading day of the year on Wednesday, adding to a 22 percent plunge last year, on concern increases in borrowing costs and Europe's debt crisis will derail economic growth.

The CSI 300 slid 25 percent in 2011. The value of stocks traded in Shanghai slumped to the weakest level in three years on Dec 29.

The People's Bank of China refrained from selling three-month bills for a second week on Thursday, helping stem increases in money-market rates as banks hoard cash in the run-up to the Chinese New Year holiday.

China's seven-day repurchase rate, which measures interbank funding availability, rose 51 basis points to 4.51 percent in Shanghai, based on a daily fixing by the National Interbank Funding Center.

Bloomberg News