China stocks drop to near four-year low as Trump said to prepare new tariffs

SHANGHAI (Reuters) - China's main Shanghai Composite index fell to its lowest close in nearly four years on Monday as reports said U.S. President Donald Trump would unveil new tariffs on $200 billion of imported Chinese goods this week.

The Shanghai Composite index dropped 1.1 percent to 2,651.79 points, its worst close since Nov. 27, 2014. The blue-chip CSI300 index also declined 1.1 percent, to 3,204.92 points.

In Hong Kong, the Hang Seng index was down 1.3 percent in late afternoon trade, and the China Enterprises index was off 1.2 percent.

A senior official in the Trump administration told Reuters that Trump would announce the new tariffs as early as Monday. China has vowed to retaliate to any new U.S tariff action, and may decline to participate in further talks if new tariffs are announced.

On Monday, the widely read Global Times tabloid, published by the ruling Communist Party's People's Daily, said in an editorial that China would not only play defence in an escalating trade war.

Everbright Sun Hung Kai analysts, said in a note Monday, said China "would very unlikely be visiting the U.S. against this backdrop with both sides looking to preserve face and be seen to be in a strong position."

The anticipated new tariffs, reported to be 10 percent, may cover a wide range of items including internet technology products and other electronics, printed circuit boards and consumer goods including Chinese seafood, furniture and lighting products, tires, chemicals, plastics, bicycles and car seats for babies, according to a list of items announced in July.

Trump directed aides to proceed with the new tariffs despite Treasury Secretary Steven Mnuchin's attempts to restart trade talks with China.

Fears of an escalating trade war pulled shares lower across the board. A CSI300 sub-index tracking the real estate sector ended 1.4 percent lower, industrial firms fell 1.2 percent and healthcare firms lost 2.4 percent.

The drop in real estate shares came despite data showing China's August home prices accelerated at the fastest pace in nearly two years.

The smaller Shenzhen index ended down 1.5 percent on Monday and the ChiNext startup board finished 1.2 percent lower.

China's yuan also weakened on the prospect of a hotter trade war, despite the central bank setting the midpoint of the currency's daily trading band firmer than expected. The yuan traded as low as 6.8756 per dollar before strengthening to 6.8699 per dollar as of 0725 GMT.

In Hong Kong, the sub-index of the Hang Seng index tracking energy shares dipped 0.6 percent while the IT sector was 2.6 percent lower.

Amid concerns that a protracted trade war could strengthen headwinds to Chinese economic growth, the People's Bank of China (PBOC) on Monday injected 265 billion yuan into China's banking system through its medium-term lending facility, in a move that surprised the market.

The injection "sends the message that the PBOC remains proactive in maintaining stable money market rates, especially as cash demand should increase over the next few weeks amid bond supply, a long holiday and quarter-end," Nomura analysts said in a note.

(Reporting by Andrew Galbraith; Editing by Richard Borsuk)