Chinese stocks closed down sharply on Monday, with investors selling on weaker-than-expected economic data and nervously eyeing the next phase in the US-China trade dispute. The benchmark Shanghai Composite Index shed 2.52 percent, or 71.86 points, to 2,775.56. The index is in a technical bear market having fallen more than 20 percent from its recent peaks seen in January.
The Shenzhen Composite Index, which tracks stocks on China's second exchange, fell 1.58 percent, or 25.36 points, to 1,582.26. The main catalyst for the declines was data tracking Chinese factory activity that came in lower than market expectations.
The Purchasing Managers' Index (PMI) was 51.5 in June, decelerating from 51.9 in May, according to the National Bureau of Statistics (NBS). "The market is in a relatively weak environment, so any slight movement could greatly disturb investors," said Shen Zhengyang, an analyst from Northeast Securities.
Shen also noted that Monday's drop could be a reaction to a strong performance Friday, when stocks in both Shanghai and Shenzhen closed sharply higher.
Real estate firms led the losses with investors worried about measures to curb speculation in the overheating property market.
Guangzhou-based Poly Real Estate plunged 9.75 percent to 11.01 yuan and Shenzhen-based Vanke shed 7.32 percent to 22.80 yuan.
Insurance firms also suffered in Shanghai. China Pacific Insurance closed 6.53 percent lower to 29.77 yuan while Ping An Insurance lost 5.74 percent to 55.22 yuan.
The losses come as market players brace for the next stage of a trade war between the world's top economies, with US tariffs on hundreds of Chinese products expected to come into force on Friday.
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