By Bloomberg News May 11 (Bloomberg) -- China’s stocks dropped, sending the benchmark index into a bear market, on concern the government will raise borrowing costs to combat inflation and unveil more measures to curb soaring housing prices. The Shanghai Composite Index, which tracks the bigger of China’s stock exchanges, fell 51.31, or 1.9 percent, to close at 2,647.44, the lowest in almost a year. The measure slid 21 percent from the close of 3,338.66 on Nov. 23, a sign analysts say is a bear market. The CSI 300 Index lost 2 percent today. China’s consumer prices rose 2.8 percent in April from a year earlier, the fastest pace in 18 months, and property prices jumped 12.8 percent, the statistics bureau said today. Faster inflation and the prospect of asset bubbles put pressure on the government to raise interest rates for the first time since 2007. “If inflation isn’t contained, the central bank will have to raise interest rates,” said Zhao Zifeng, who helps oversee about $10.2 billion at China International Fund Management Co. in Shanghai. “We’ll still need to gauge housing prices in the coming months as the previous crackdown measures were put in place not long ago. More tightening policies could follow.” The Shanghai index has slid 19 percent this year, the world’s worst performer among the 93 gauges tracked by Bloomberg, on concern government will increase efforts to curb speculation in the property market, hurting economic growth. The People’s Bank of China has ordered lenders to set aside more deposits as reserves three times in 2010. The government also imposed a ban last month on loans for third-home purchases and raised mortgage rates and down-payment requirements for second home purchases to curb housing prices. China’s government aims to contain full-year inflation at 3 percent and avert property bubbles after record credit growth drove an economic rebound. --Zhang Shidong. With assistance from Shiyin Chen in Singapore. Editors: Allen Wan, Linus Chua To contact Bloomberg News staff for this story: Zhang Shidong in Shanghai at +86-21-6104-7014 or szhang5@bloomberg.net

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