SHANGHAI stocks closed slightly lower yesterday after hitting a four-year low amid rising fears over a liquidity crunch.

The Shanghai Composite Index ended 0.19 percent down at 1,959.51 points, paring an early loss of 5.7 percent during the session. On Monday, the barometer plunged 5.3 percent, its biggest daily loss in nearly four years, after the central bank signaled that it would not inject funds to ease the tight liquidity squeeze at financial institutions.

A CITIC Securities report said the real economy is unlikely to be battered by the current liquidity crunch. The brokerage also sees the A-share market to be volatile till mid-July when the cash crunch is expected to ease with lending costs falling back to normal level.

Most lenders recovered. The Industrial Bank added 0.3 percent to finish at 13.93 yuan (US$2.27) after slumping as much as 7.6 percent. Shanghai Pudong Development Bank reversed an early loss of 5.7 percent and increased 3.7 percent to close at 7.80 yuan.