Chinese stocks dived on Wednesday after the securities regulator said the tumbling stock market in the world's second-biggest economy was in the grip of "panic sentiment" as investors ignored a battery of support measures from Beijing.
Amid signs of the market freezing up as companies scrambled to have trading in their shares suspended, the People's Bank of China said it was watching closely and would guard against systemic regional financial risks.
The CSI300 index of the largest listed companies in Shanghai and Shenzhen fell 5 percent in early trade, while the Shanghai Composite Index was down 4.3 percent. Both indexes had plunged around 8 percent at the market open.
Around 30 percent has been knocked off the value of Chinese shares since mid-June, and for some global investors the fear that China's market turmoil will destabilise the real economy is now looming as a bigger risk than the euro zone crisis.
"Today is all about China, with Greece in the background now that it's been given a new deadline," said Ayako Sera, senior market economist at Sumitomo Mitsui Trust Bank in Tokyo.
"Shanghai's early losses were like a cliff-dive, which had a huge impact on investor sentiment."
The ChiNext growth board of small-cap companies, which has seen some of the biggest swings in valuations, fell 1.6 percent.
Over 500 China-listed firms announced trading halts on the Shanghai and Shenzhen Exchange on Wednesday, taking total suspensions to about 1,300 - 45 percent of the market - as companies seek shelter from the rout.
"I've never seen this kind of slump before. I don't think anyone has. Liquidity is totally depleted," said Du Changchun, an analyst at Northeast Securities.
"Originally, many wanted to hold blue chips. But since so many small caps are suspended from trading, the only way to reduce risk exposure is to sell blue chips."
SOURING BOOM
The plunge in China's previously booming stock markets, which had more than doubled in the year to mid-June, is a major headache for President Xi Jinping and China's top leaders, who are already struggling to avert a sharper economic slowdown.
Beijing's interventionist response has also raised questions about its ability to enact the market liberalisation steps that are a centrepiece of its economic reform agenda.
China has orchestrated brokerages and fund managers to promise to buy at least 120 billion yuan ($19 billion) of stocks, helped by a state-backed margin finance company which the central bank pledged on Wednesday to provide sufficient liquidity.
Unlike other major stock markets, which are dominated by professional money managers, retail investors account for around 85 percent of China trade, which exacerbates volatility.
"It's uncommon to see so many shares posting consecutive daily limit falls, and the index futures swinging so wildly," said Wang Feng, CEO and founder of hedge fund firm Alpha Squared Capital Co and a former Wall Street trader.
"It's a stampede. And the problem of the market is that all the players move in the same direction, and are too emotional."
A surprise interest-rate cut by the central bank at the end of June, relaxations in margin trading and other "stability measures" did little to calm investors.
The barrage of official commentary and new support measures continued on Wednesday.
Deng Ge, a spokesman for the China Securities Regulatory Commission said in remarks posted on its official channel on Weibo, China's version of Twitter, that there had been a big increase in "irrational selling" of stocks.
China's insurance regulator said "qualified" insurers could increase their ratio of equity assets to 40 pct from 30 pct by buying blue-chip stocks.
But the market sell-off has extended beyond the mainland, with Chinese stocks on U.S. exchanges falling as much as 6.1 percent on Tuesday, according to the Bank of New York Mellon index of such securities.
Hong Kong's Hang Seng Index fell 4.7 percent, with shares of Chinese brokerages taking a pounding.
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