The Shanghai Composite Index fell below the psychological support level of 4,000 points Thursday for the first time since April.
Margin traders continued to unwind positions amid doubts over the effectiveness of government measures to support equities, Bloomberg reported.
The benchmark stock index slumped 3.5 percent to 3,912.77 at the close.
The gauge has tumbled 24 percent from its June 12 peak, helping wipe out at least US$2.4 trillion of value.
Fifteen stocks dropped for each one that rose Thursday, with industrial, power and commodity shares leading losses.
The drop below 4,000 is a blow to investors who had speculated authorities would intervene to support shares, a strategy employed near closely watched levels in the past.
While China’s securities regulator eased margin-trading rules and the country’s stock exchanges announced fee cuts overnight, the moves failed to revive confidence in a market that has wiped out the equivalent of France’s entire equity capitalization in three weeks.
“Four thousand is the psychologically critical level that should not have been broken,” Castor Pang, head of research at Core Pacific Yamaichi in Hong Kong, was quoted as saying.
“The government will have to and need to come up with more measures; otherwise the market is poised to drop further.”
Margin debt on the Shanghai Stock Exchange fell to 1.33 trillion yuan (US$214 billion) on Wednesday for an eighth day of declines, the longest stretch since the bourse began to compile the data in March 2010.
A fivefold surge in leveraged bets had helped propel the Shanghai index to a more than 150 percent gain in the 12 months through June 12.
Hours after Wednesday’s tumble of 5.2 percent in the index, the securities regulator eased collateral requirements for leveraged investors and allowed brokerages to securitize margin loans — a move that frees up room to extend credit.
The same day, the Shanghai Stock Exchange said China’s two bourses will cut equity-trading fees by 30 percent starting Aug. 1.
“When investors lose confidence and rush to sell, these short-term measures will be hardly sufficient to stop the rout,” Chen Xingdong, the chief economist and head of macroeconomics research at BNP Paribas SA in Beijing, was quoted as saying.
“In the long term, regulators should let the market play a bigger role. Official media have been talking up the market and people have been chasing hot stocks regardless of their fundamentals.”
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