http://biz.yahoo.com/ap/070131/china_markets.html?.v=9 China's Benchmark Stock Index Tumbles Wednesday January 31, 6:15 am ET By Elaine Kurtenbach, AP Business Writer China's Benchmark Stock Index Tumbles 4.9 Percent, Biggest 1-Day Loss in 8 Months SHANGHAI, China (AP) -- Chinese shares tumbled nearly 5 percent in their biggest one-day loss in eight months on Wednesday amid mounting worries over high stock valuations. Analysts said the decline, led by blue chips, likely signaled a respite after weeks of continued record highs. ADVERTISEMENT The Shanghai Composite Index fell 4.9 percent to 2,786.33, its biggest one-day decline since a 5.3 percent tumble on June 7, 2006. The smaller Shenzhen Composite Index slid 5.8 percent to 655.53. The Shanghai index fell 0.5 percent on Tuesday. "Many traders felt a push to cash out, for even blue chips, such as banks, are trading at high valuations," said Hao Guomei, an analyst at Huatai Securities. The Shanghai index closed at a record 2,975.13 on Jan. 24 -- before plunging 4 percent the following day. "The index seems to have peaked last week. It's very unlikely to reach 3,000 in the short term," said Wang Sheng, a strategist at Haitong Securities. Wednesday's decline followed warnings from the Shanghai Stock Exchange and other regulators over rising risks from the market's recent bull run. Before Wednesday's tumble, the Shanghai index, which tracks China's biggest companies, was up 9.5 percent for the year after after soaring 134 percent last year. Trading volumes have been at record highs amid growing volatility. The Shenzhen index, meanwhile, had soared 26.4 percent since the start of the year before Wednesday's drop. "Twenty percent growth for 15 years in a row would be great. Instead they got 134 percent in one year," said Jonathon Anderson, chief Asia economist for the UBS brokerage in Hong Kong. "China doesn't want an equity bubble." Regulators might enact new capital gains taxes or other administrative measures if they decide the market is out of control, he said. By the standard measure of price to earnings ratios, local currency-denominated "A shares" are trading at a relatively high average ratio of about 33 percent. But many of the hottest stocks are at much higher levels. That includes market heavyweight China Life Insurance, now trading at a P/E ratio of over 100. China Life fell 4.4 percent to 38.21 yuan Wednesday in Shanghai. China still limits foreigners' purchases of the yuan-denominated stocks that make up the biggest share of the markets, though that is gradually changing as regulators allow increasing participation by so-called foreign institutional investors. Large caps led Wednesday's declines, with China United Telecommunications down 9.3 percent at 4.61 yuan, China Petroleum & Chemical falling 8.8 percent to 9.68 yuan, and property developer China Vanke off 9.4 percent at 15.31 yuan. China Minsheng Banking sank 9.3 percent to 12.02 yuan even though the lender said early Wednesday that its 2006 net profit rose about 40 percent, above some analysts' forecasts of 30 percent-plus growth. Other banks also fell, with Hua Xia Bank plunging by the daily 10 percent limit to 10.24 yuan and China Merchants Bank down 6.9 percent at 17.17 yuan. Despite the potential for a correction, most analysts believe the market is bound to continue to climb in the long-term. China's markets languished for years before reviving last summer after shareholding reforms and other measures helped bring price manipulation and other abuses under control. Market sentiment has been further boosted by recovering corporate earnings -- and an economy growing at a rate of more than 10 percent a year. Chinese retail investors, bereft of lucrative investment options in a still immature capital market, have been shifting en masse back into stocks after years of staying away. In currency dealings Wednesday, month-end U.S. dollar sales pushed the yuan higher. The dollar was at 7.7728 yuan on the over-the-counter market at 0730 GMT, down from Tuesday's close of 7.7750. Sun Yan of Dow Jones Newswires contributed to this story.