The start of the Communist Party of China's 18th National Congress on Thursday failed to shore up the country's A-share market.

A rally is expected to appear on Friday, though, as the release of favorable inflation data may give investors reason to be optimistic about the economy.

Dragged down by a decline in most of the global markets, the Shanghai Composite Index dropped 1.63 percent, or 34.33 points, on Thursday, falling to 2071.51 points after gaining 2.46 percent last week.

Shares in China Shenhua Energy Co Ltd, the country's largest coal-mining company by production, decreased by 2.29 percent, or 0.53 yuan ($0.08), falling to 22.65 yuan. The decline came amid investors' worries that the approaching "fiscal cliff" in the United States will unsettle commodity prices.

The "fiscal cliff" refers to a combination of tax increases and spending reductions that will occur automatically in the US unless leaders there take action to prevent them.

Industrial and Commercial Bank of China Ltd, the nation's biggest bank by assets and market capitalization, was down 0.26 percent to 3.87 yuan.

"The drop is mainly a result of weak overseas markets," said Zhang Qi, a stock analyst with Haitong Securities Co Ltd.

The Dow Jones Industrial Average lost 2.36 percent, or 312.95 points, to finish at 12932.73 points on Wednesday. That marked the index's biggest decline in a year, as investors turned their attention from the US presidential election to the fact that the $607 billion worth of tax increases and spending cuts that constitute the "fiscal cliff" are scheduled to take effect at the beginning of next year.

In Hong Kong, where a large inflow of "hot money" has helped equities to stay buoyant since October, the Hang Seng Index lost 2.41 percent, or 532.94 points, to hit 21655.92 points, its lowest level in 20 days. And the Hang Seng China Enterprises Index, which follows mainland companies listed in Hong Kong, dropped by 2.65 percent.

The start of the Party congress had little effect on the stock market, said Wang Jianhui, chief economist with Southwest Securities Co Ltd.

"According to what we've seen in the past, market-driving news will only come out later in the meeting, when senior government officials start to talk to the media," Wang said.

The National Bureau of Statistics is scheduled to release the October consumer price and producer price indices for the Chinese mainland on Friday. Analysts believe the readings will show an improvement from the previous month.

Barclays Bank Plc forecast that the CPI, a gauge of inflation for consumer goods, will edge up to 2 percent in October as food prices remain flat and non-food prices increase slightly. The PPI, meanwhile, is expected to show that producer prices fell by 2.7 percent in October, according to the bank.

Weekly producer price data for nonferrous metals, minerals and chemicals suggest that PPI deflation has slowed as a result of an increase in the prices of raw materials and a recovery in demand.

Wang said he expects to see the inflation data drive the Shanghai index back up to 2100 points.

In Japan, the benchmark Nikkei 225 fell 1.5 percent to 8837.15 on Thursday, the biggest single-day drop since Oct 10. In India, the BSE India Sensitive Index, or Sensex, dropped by 0.41 percent, or 77.02 points, to hit 18825.39 points at 4 pm, bringing a halt to its six consecutive days of advances.

Contact the writers at gaochangxin@chinadaily.com.cn and xieyu@chinadaily.com.cn

(China Daily 11/09/2012 page14)