At closing bell, the benchmark Shanghai Composite Index declined 0.78%, or 22.85 points, to 2,920.90. The Shenzhen Composite Index, which tracks stocks on China's second exchange, dropped 0.51%, or 9.64 points, to 1,865.30. The blue-chip CSI300 index fell 1.09%, or 48.83 points, to 3,995.88.
The recent rally in equities has stalled following comments about the pace of the economic recovery by the US Federal Reserve chair Jerome Powell following the Fed's June meeting. The U.S. Federal Reserve on Wednesday opted to leave its interest rates unchanged and gave a gloomy outlook for the economy, forecasting the world's largest economy could shrink by as much as 6.5% this year before expanding by 5% in 2021. Fed Chairman Jerome Powell remarked that the central bank is "not even thinking about raising rates" and that interest rates are likely to remain near zero until the end of 2022. The central bank also said it will at least maintain the current rate of bond purchases.
Investor sentiment was also hit by rising diplomatic tensions between Australia and China after Australia called for an international inquiry into the source and spread of the coronavirus.
Investors are closely monitoring economic data to gauge health of the economy. New bank lending in China fell more than expected in May but broader credit growth quickened as the central bank continues to ease policy to get the economy back on solid footing after the coronavirus crisis.
CURRENCY NEWS: The yuan weakened against the dollar on Tuesday, despite firmer mid-point fixing by central bank. Prior to market opening, the People's Bank of China (PBOC) set the midpoint rate CNY=PBOC at 7.0608 per dollar, 0.13% firmer than the previous fix of 7.0703. The onshore yuan CNY=CFXS traded 0.06% weaker at 7.0667 while the offshore yuan CNH=D3 softened 0.21% to 7.0656.
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