SHANGHAI - Stocks on the Chinese mainland fell on Thursday. The retreat came as concern the government will maintain its tight monetary policies overshadowed speculation that the European debt crisis may ease after Germany and France said Greece will remain a member of the eurozone.

"The euro turmoil has eased temporarily and that will increase the appetite for global risk assets," said Zhang Ling, general manager at Shanghai River Fund Management Co. "Inflation persists and tight policies will remain in place. Valuations will be held back but we are close to the bottom."

The benchmark Shanghai Composite Index fell 5.77 points, or 0.2 percent, to 2479.05, erasing an earlier 0.5 percent gain. About six stocks slid for every five that rose. The CSI 300 Index slipped 0.2 percent to 2729.05.

The Shanghai gauge has slumped 12 percent this year, extending last year's 14 percent plunge, as the government took steps to cool inflation that is close to a three-year high. The stock gauge is valued at 11.4 times estimated profit, the lowest on record, according to weekly data compiled by Bloomberg dating back to January 2006.

Traders of interest rate swaps are betting borrowing costs will be raised once more in the next year after five increases in the past 12 months. China has also expanded the amount banks have to keep in reserve to include margin deposits.

China Minsheng Banking Corp fell 1.7 percent to 5.77 yuan (90 US cents). Huaxia Bank Co, partly owned by Deutsche Bank AG, lost 1.4 percent to 10.47 yuan.

On Thursday, small- and medium-sized banks started to place more than 70 billion yuan of margin deposits at the central bank, according to the Shanghai Securities News. It is harder for smaller banks to extend credit with earnings at Shenzhen Development Bank Co, Huaxia Bank and Bank of Nanjing Co affected the most, the newspaper said.

A measure of 24 energy stocks retreated 0.5 percent, the most among the CSI 300's industry groups. Shenhua Group, China's largest coal producer, dropped 0.9 percent to 25.40 yuan. China Coal Energy Co, the second biggest, lost 0.9 percent to 9.55 yuan.

French President Nicolas Sarkozy and German Chancellor Angela Merkel said they are "convinced" Greece will remain in the eurozone, according to a statement issued after they spoke to Greek Prime Minister George Papandreou by telephone.

Papandreou has committed to meeting deficit reduction targets that were demanded as a condition for an international bailout, according to statements from Athens, Berlin and Paris, easing concern Greece may default on its debt.

SAIC Motor Corp gained 2.3 percent to 15.47 yuan, its highest close since Aug 29. SAIC will issue 1.78 billion shares to swap assets worth 29.1 billion yuan with its parent, the company said in a statement.

Anhui Jianghuai Automobile Co, a unit of China's biggest light truck exporter, rose 0.6 percent to 7.97 yuan. Tianjin FAW Xiali Automobile Co added 1.9 percent to 8.15 yuan.

Bloomberg News