SHANGHAI stocks retreated today amid diminishing hopes that the government will take aggressive measures to support economic growth, even though China reported a surprising surge in foreign direct investment last month.

The key Shanghai Composite Index shed 20.80 points, or 1.01 percent to 2,044.92. Daily turnover was 88 billion yuan (US$14.4 billion).

Market expectation for policy stimulus were dampened by the Finance Minster Lou Jiwei, who said China is unlikely to introduce a large fiscal stimulus this year but will employ some tax preferences for small businesses, according to a statement published on the ministry's website today.

Premier Li Keqiang yesterday reiterated that China will keep stabilizing economic growth and controlling inflation risks while pushing forward reforms, but added that the country would not shift its policy direction because of a temporary change in economic indicators.

"Li's words indicated the government is comfortable with the current pace of the growth slowdown and will tolerate a similar pace of decline in the second half of the year," said Zhang Zhiwei, chief economic for China at Nomura Holdings Inc, in a note today.

China's economy expanded 7.5 percent year on year in the second quarter, down from 7.7 percent in the first quarter and 7.9 percent in the fourth quarter.

Shares of distilleries, automakers and oil producers were among the biggest losers.

Kweichow Moutai Co, a leading producer of high-end liquor in China, fell 2.1 percent to 186.92 yuan. Sichuan Tuopai Shede Wine Co dropped 4.3 percent to 17.44 yuan.

China attracted US$14.39 billion of FDI in June, a 20.12 percent increase from a year earlier, the Ministry of Commerce said today. The figure compared with a 0.29 percent gain in May.

FDI totaled US$61.98 billion in the first six month of the year, up 4.9 percent year on year, the ministry said.

Most homebuilders gained against the falling index after the Xinhua News Agency reported that China is set to resume approvals of refinancing by property developers.

Wolong Real Estate Group Co surged by the daily limit of 10 percent to 3.20 yuan. Shandong Tyan Home Co jumped 10 percent to 7.73 yuan.