Volatility shook Chinese stock markets today, as the Shanghai index dropped more than three percent on concerns over slowing growth before erasing most of the losses, a day after authorities halted trading to arrest falling prices.
The Shanghai market slumped 6.86 per cent yesterday after the release of weak manufacturing data heightened worries about the health of the world's second-largest economy, sparking a wave of selling of global equities.
A new "circuit breaker" mechanism aimed at curbing sharp swings went into effect on Monday, closing markets early, but analysts said its introduction added to traders' nervousness, prompting them to sell rather than risk being caught with holdings they could not liquidate.
"The main reason for yesterday's fall was concern that China's economy won't steadily pick up. The circuit breaker was more of an accelerant for the fall," Northeast Securities analyst Shen Zhengyang told AFP.
"Today's (Tuesday's) low should be the lowest point for the short term."
The benchmark Shanghai Composite Index ended down only 0.26 per cent at 3,287.71, after tumbling as much as 3.24 per cent during the day.
State-controlled funds bought stocks on Tuesday, Bloomberg News reported, quoting people familiar with the matter, mirroring moves last year when the government waded into the market to halt a rout.
The People's Bank of China, the central bank, also pumped 130 billion yuan (USD 20 billion) into the money market, according to a statement.
"Liquidity is tight in the market and the PBoC has to react to that," Frances Cheung, Hong Kong-based head of rates strategy for Asia ex-Japan at Societe Generale, told Bloomberg.
The Shanghai index soared 150 per cent in the 12 months to mid-June and then plummeted nearly 30 percent in three weeks, prompting a government rescue package, before ending the year up 9.4 per cent.
On Tuesday, the Shenzhen Composite Index, which tracks stocks on China's second exchange, dropped 1.86 per cent to 2,079.77, after plunging 5.37 per cent earlier.
