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SHANGHAI, March 28 (Reuters) - China stocks fell on Tuesday on concerns about tightening liquidity conditions after the central bank refrained from injecting short-term funds into the banking system for the third session in a row.
The blue-chip CSI300 index fell 0.2 percent to 3,469.81 points, while the Shanghai Composite Index lost 0.4 percent to 3,252.95.
The People's Bank of China (PBOC) skipped open market operations again on Tuesday, saying liquidity levels in the banking system were "appropriate" and there was no reason to inject more funds.
Interbank borrowing costs remained elevated, however, with the Shanghai Interbank Offered Rate (SHIBOR) for the seven-day tenor at 2.7910 percent, around its highest level since mid-2015.
Adding to the usual concerns about tighter liquidity heading into the month- and quarter-end, some lenders are believed to be hoarding cash ahead of the central bank's quarterly assessment of the health of commercial banks. (For a factbox on the risk assessment report and its possible impact on banks and markets, see)
The PBOC's decision to withhold funds is reinforcing expectations it will gradually tighten monetary policy this year as it looks to reduce risks in the financial system and encourage more deleveraging. It has nudged up money market and short-term rates several times already this year.
For China's stock market investors, concerns about the impact of further tightening have overshadowed a raft of upbeat economic data, including robust industrial profits released on Monday.
"In the short term, neither bulls nor bears can get the upper hand," Min Lizheng, analyst at Eastmoney Securities wrote.
The government must balance the need to support the economy and ward off asset price bubbles, Min said.
Investors pulled out from smaller-caps, with newly-listed stocks the worst hit, as the securities regulator vowed to step up a crackdown on speculation or manipulation by issuing large amounts of bonus shares instead of paying out cash dividends.
Most sectors lost ground, dragged down by financial and infrastructure stocks. (Reporting by Luoyan Liu and John Ruwitch; Editing by Kim Coghill)