China's main stock index slid 3.34 percent to a fresh 21-month closing low on Thursday, led by blue chips, as gloom over the slowing economy and large supplies of fresh equity persisted. The Shanghai Composite Index ended at 2,078.981 points, near the day's low of 2,070.427, leaving it down 66 percent from last October's record peak.
Banks were hit particularly hard, in line with a global trend after Lehman Brothers posted a record quarterly loss in the United States. China's biggest bank, Industrial & Commercial Bank of China, sank 4.66 percent to 4.30 yuan.
Merchants Bank tumbled 8.89 percent to 18.04 yuan. It agreed in June to buy a controlling stake in Hong Kong's Wing Lung Bank in a $4.66 billion deal, but the market fears weakness in the global banking industry and Wing Lung shares could make that a risky investment for Merchants.
News of lower-than-expected August inflation and strong August exports boosted the market slightly on Wednesday. But the impact faded quickly, because analysts are not convinced that lower inflation will bring any major easing of monetary policy, while exports remain vulnerable to a global economic slowdown.
"Shares freed up by the expiry of lock-up periods continue to be sold into the market, and investors' interest in buying has been destroyed" by uncertainty in the Chinese and global economies, said Chen Huiqin, analyst at Huatai Securities.
Turnover in Shanghai A shares shrank to 27.1 billion yuan ($4.0 billion) from 28.4 billion yuan on Wednesday. Losing Shanghai shares outnumbered gainers by 785 to 146. The most heavily weighted stock in the index, PetroChina, slid 3.34 percent to 10.71 yuan. Property giant Vanke lost 6.25 percent to 5.55 yuan.
"The index is on the way to 2,000 points and without strong market-friendly policies, one cannot even be confident that 2,000 will be a floor," said Zhang Qi, analyst at Haitong Securities.
Investors continue to hope for intervention from the government - perhaps fresh restrictions on sales of stocks by big state shareholders - to prop up the market.
Underlining investors' aversion to fresh equity supply, Guizhou Guihang Automotive tumbled its 10 percent daily limit to 6.85 yuan after saying some of its shares would become tradable next Tuesday with the expiry of an institutional lock-up period. Beijing Oriental Yuhong Waterproof Technology fell its 10 percent limit to 17.99 yuan after rising only 15 percent, less than expected, in its debut in Shenzhen on Wednesday. Chen said this showed bearish investors were even losing faith in newly listed shares, which had previously been a bright spot in the market.
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