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China stocks fall again, despite government efforts

Chinese shares sank on Tuesday, a day after Shanghai's steepest one-day slide in eight years, defying renewed government vows of support that analysts warned were not enough to soothe nervous investors. The fresh losses, in a volatile session, came despite an unprecedented effort by the government of the world's second largest economy to shore up prices following a month-long rout. The recent turmoil followed a stock boom encouraged by the authorities, and their willingness to intervene in the market has raised questions about their commitment to economic reforms. The Shanghai Composite Index fell 1.68 percent, or 62.56 points, to 3,663.00 on turnover of 685.1 billion yuan ($112.0 billion) after falling as much as 5.0 percent and rising up to 0.93 percent during the day. The Shenzhen Composite Index, which tracks stocks on China's second exchange, ended down 2.24 percent, or 48.39 points, at 2,111.70 on turnover of 618.8 billion yuan. Some of China's legions of small investors -- who dominate the market, unlike most exchanges worldwide, where institutions are the largest stockholders -- say they are heading for the exits. "I sold 90 percent of my stocks since I saw several reports saying that the market is due for a correction," said Ling Lihui, a manager at a market research company, who sold last week. Monday's 8.48 percent fall in Shanghai was the biggest drop since February 27, 2007 and sent tremors through global bourses. After the market closed on Tuesday, the securities regulator warned it would investigate Monday's "abnormal" fall, blaming it in a statement on "concentrated" selling of shares. It gave no further details. Although Chinese equity markets are relatively closed to outside investors, there are worries about the health of the underlying economy, which is a key driver of global growth. On Wall Street the Dow fell 0.73 percent on Monday while London, Paris and Frankfurt also lost ground on China worries. Asian markets mostly fell again Tuesday but Hong Kong closed up 0.62 percent. After Monday's collapse the China Securities Regulatory Commission said it would continue to "stabilise" prices. The state-backed China Securities Finance Corp., tasked with supporting the market, would increase its shareholdings, the commission said in a statement. - 'Decline delayed' - Infrastructure-linked stocks fell in Shanghai. Longjian Road and Bridge plunged by its 10 percent daily limit to 6.77 yuan while Offshore Oil Engineering slumped 7.94 percent to 11.25 yuan. But banking shares rose on expectations they are the target of government buying. In Shanghai, China Minsheng Banking rose 4.11 percent to 9.11 yuan, China Construction Bank added 3.19 percent to 6.15 yuan and Shanghai Pudong Development Bank gained 2.21 percent to 15.24 yuan. Analysts warned that regulators' comments might not be enough without concrete action. "The government’s current intervention was not able to stop the market's slide and only delayed the decline," Castor Pang, head of research at Core-Pacific Yamaichi Hong Kong, told Bloomberg News. Beijing initially stepped in after the market plunged more than 30 percent in just under four weeks from mid-June, having risen more than 150 percent in the previous 12 months. Early efforts failed to change sentiment, until the government banned shareholders with more than five percent stakes from selling stock and launched a police crackdown on short-selling. The China Securities Finance Corp., previously a largely unknown institution which helped provide financing to brokerages, has also amassed a war chest of funds to buy stocks, media reports say. The interventions contrast with pledges by the Communist party two years ago to allow the market to play a "decisive role" in the economy. Analysts said economic and social stability outweighed such considerations. Experts fear the turmoil will delay China’s pledged moves to open its capital markets further to the outside world and make its yuan currency freely convertible. The market had rallied for six sessions until Friday, when an independent survey of manufacturing activity hit a 15-month low in July. Some analysts believe the market rout has yet to become a crisis for the banking system, but warn it could have an impact on economic growth. China's economy expanded 7.4 percent last year, the weakest pace since 1990, and slowed further to 7.0 percent in each of the first two quarters this year. "We do not regard price movement in the equity market (as) a financial crisis," ANZ said in a research report on Monday. "The equity market rout provides room for the PBoC (People's Bank of China) to ease monetary policy."