HONG KONG (Reuters) - Chow Tai Fook Jewellery Group Ltd (>> Chow Tai Fook Jewellery Group Ltd), the world's biggest jewellery retailer by market value, is among a number of gold shops being investigated for price fixing, the online edition of the official People's Daily newspaper reported.

An investigation would mark the latest sector to come under scrutiny in China as authorities also look into companies in the infant formula milk and pharmaceutical industries.

Shares of Hong Kong-based Chow Tai Fook and other jewellery stores named in the report, including Chow Sang Sang International Holdings Ltd (>> Chow Sang Sang Holdings Intrnl Ltd), fell on the report.

In a statement posted on its website late on Friday, Chow Tai Fook said it follows "its own gold pricing mechanism, and is not subject to the constraints or restrictions of any association or other jewellery retailers."

The People's Daily, citing unidentified sources, said China's National Development and Reform Commission was probing price manipulation by some jewellery shops in the commercial capital of Shanghai.

The online report, which was later reposted on a government website, said several shops had admitted to authorities that they colluded on prices.

A spokeswoman for Chow Sang Sang, which has a market value of $1.5 billion, told Reuters it did not know why it had been named in the report. "We don't understand why we got involved in the story," spokeswoman Cathy Tam said.

"We set the gold price every day based on the New York market close. The gold price is the same within the whole region of China and we don't have district differences."

Chow Tai Fook has a market value of $11.9 billion. Its mainland China revenue reached HK$30.3 billion ($3.9 billion) in the year ended March 31, representing more than half of its total business. Eighty percent of its China business was characterised as retail.

Shanghai-based jewellery retailer Lao Feng Xiang (>> Lao Feng Xiang Co Ltd), which was also named in the report, could not immediately be reached for comment.

CORPORATE SCRUTINY EXPANDS

The report came days after Chinese authorities accused Britain's top drug maker, GlaxoSmithKline (>> GlaxoSmithKline plc), of bribing officials and doctors to boost sales and raise medicine prices there, while Belgian drug maker UCB (>> UCB) said on Thursday it had also been visited by officials.

Pricing in the infant milk formula business is also under scrutiny and a number of international milk powder producers recently cut prices in China after the country's top economic planning agency said it was investigating possible price-fixing and anti-competitive behaviour.

Shares in Chow Tai Fook fell as much as 6 percent on Friday, while Chow Sang Sang shed as much as 5 percent.

Shares of firms not named in the report also fell, with Emperor Jewellery & Watch (>> Emperor Watch & Jewellery Limited) tumbling around 5 percent and Luk Fook Holdings (International) Ltd (>> Luk Fook Holdings (International) Ltd.) falling as much as 5 percent. The benchmark Hang Seng Index <.HSI> was flat in late afternoon trade.

Some analysts said pricing in the gold sector was generally transparent and it would be hard to fix prices.

"Gold products are priced by weight and prices are difficult to manipulate because everyone knows the market and the prices are very transparent. Also, if they mark up prices by too much in Shanghai, consumers will buy their products elsewhere," said Steve Chow, an analyst at Sunwah Kingsway Research.

Gold posted a record quarterly fall from April to June, luring mainland Chinese buyers to Chow Tai Fook's almost 1,800 jewellery and gold stores across China, Hong Kong and Macau.

Industry sources said it was market practice for major jewellers to agree on a daily price benchmark for gold via the jewellery association and Chow Tai Fook might have been found to have colluded with other players during this process.

The daily benchmark rates set by the association for gold products are between 13 and 15 percent higher than international gold prices to account for processing and craftsmanship fees.

Chow Tai Fook earlier this month reported a 63 percent spike in first-quarter revenue, with sales of gold products from its own stores soaring 78 percent in the quarter ended June 30.

($1 = 7.7580 Hong Kong dollars)

(Additional reporting Lavinia Mo, Matthew Miller and Nishant Kumar in Hong Kong and Fayen Wong in Shanghai; Editing by Chris Gallagher and David Holmes)

By Yimou Lee and Twinnie Siu