SHANGHAI, Aug 2 (Reuters) - China stocks posted their biggest fall in more than two months on Tuesday, as tensions between Washington and Beijing escalated on news U.S. House of Representatives Speaker Nancy Pelosi was set to visit Taiwan during the day.
Pelosi, who began an Asia trip earlier on Monday in Singapore, was due to spend Tuesday night in Taiwan, three sources said, as the United States said it wouldn't be intimidated by Chinese threats to never "sit idly by" if she made the trip to the self-ruled island claimed by Beijing.
The news was enough to unsettle financial markets, which have been shaken by the war in Ukraine, surging commodity-driven inflation and rising global borrowing costs. Investors are acutely sensitive to any renewed Sino-U.S. tensions as both countries remain at loggerheads on issues ranging from trade to technology and human rights.
The blue-chip CSI300 index fell 2.0%, to 4,107.02, while the Shanghai Composite Index lost 2.3% to 3,186.27 points.
The Hang Seng index fell 2.4%, to 19,689.21, while the China Enterprises Index lost 2.5%, to 6,702.07 points.
Several Chinese warplanes flew close to the median line of the sensitive Taiwan Strait on Tuesday morning, a source told Reuters, while four U.S. warships, including an aircraft carrier, were positioned in waters east of the island on "routine" deployments.
Stocks fell across the board, with property developers , healthcare, resources and new energy shares all down more than 2%.
"The odds of an accident are rising," said Marko Papic, chief strategist at Clocktower Group. "In the near-term, investors may consider hedging such risk with a tactical short position in Chinese equities and currency."
A visit by Pelosi to Taiwan would undermine China and the United States' relationship, China's U.N. Ambassador Zhang Jun said on Monday.
Chinese foreign ministry spokesperson Hua Chunying said on Tuesday that China has been in communication with the United States over the expected visit.
"The Taiwan issue is far more sensitive politically. It has to do with Chinese sovereignty. And the U.S. is challenging that sovereignty at a time when the public in China is rather agitated given the economic context," Clocktower's Papic said.
The latest tensions come as investors worry about the outlook for global growth, as well as China's own economic recovery, which has been hobbled by widespread COVID-19 lockdowns and a slumping property sector.
Chinese leaders told the government in a meeting last week that economic growth of about 5.5% is guidance for this year and not a hard target, Bloomberg News reported on Tuesday, citing people familiar with the matter.
"China and the U.S. are engaged in a complicated game due to their own domestic constraints, prolonging the conflict and limiting win-win outcomes," Papic added.
Tech giants listed in Hong Kong tumbled 3%, hit by a double whammy of rising geopolitical anxiety and lingering regulatory concerns.
Separately, the U.S. public company accounting regulator said it will not accept any restrictions on its access to audits of Chinese companies listed in New York.
(Reporting by Shanghai Newsroom; editing by Shri Navaratnam and Jason Neely)
