China stocks slip 0.9 pct on PetroChina squeeze

(for Hong Kong stock market reports, click [.HK])

SHANGHAI, Oct 26 (Reuters) - Chinese stocks fell nearly 1 percent on Friday, extending Thursday's plunge, as PetroChina's (0857.HK) huge Shanghai IPO continued to drain money.

The Shanghai Composite Index .SSEC, which tumbled 4.80 percent on Thursday in its biggest drop since early July, slipped a further 0.91 percent to 5,511.936 points at midday. It hit an intra-day low of 5,462.013.

Losing Shanghai stocks far outnumbered gainers by 578 to 253, and turnover in Shanghai A shares shrank to a very low 44.2 billion yuan ($5.9 billion) from Thursday morning's 61.5 billion.

The squeeze caused by PetroChina's IPO has coincided with growing concern among fund managers that after rising nearly 130 percent in 2007 to this month's peak, the market is too richly valued to continue climbing for now. It is still up 106 percent since the start of the year.

"Investors are worried that the market's too high so they are shifting money to IPOs, which seem certain to rise on listing and so involve less risk," said Li Shiming, analyst at Galaxy Securities.

"It may be hard for the index to return to 6,000 points in coming weeks."

The index is now testing technical support around 5,500 points, where a couple of gaps on the daily chart roughly coincide with the late September peaks.

Analysts say any decisive break below 5,500 could prompt a slide in coming weeks to near stronger technical support at the 5,000 area, where the mid-September low roughly coincides with the mid-August peak.