Chinese shares closed down 1.6 percent on Friday after Beijing raised interest rates for the first time in nine years, bouncing off a near-3 percent slide in early trade thanks to a rally among banks.
Heavy losses emerged among stocks in industries such as property, steel, autos and cement - the same sectors to which Beijing had restricted credit, fearing bubbles forming.
The benchmark Shanghai composite index, grouping foreign-currency B shares and local-currency A shares, finished at 1,320.536 points. It had slipped as much as 2.81 percent in the opening minutes.
Analysts feared the market may fall further in coming days.
The key index might test the psychologically important 1,300-point level next week, they said.
Baoshan Iron and Steel Corp, the country's top steel maker, closed down 3.1 percent at 5.71 yuan after diving by 3.6 percent to 5.68 yuan in early trade. The state-run giant is due to unveil third-quarter results on Saturday.
Property developer Vanke, the most active stock on the southern Shenzhen exchange, plunged 7.7 percent to end at 5.00 yuan.
Shanghai Automotive, which owns a fifth of General Motors' flagship carmaking plant in China, slid 4.9 percent to 5.80 yuan. Anhui Conch Cement dived 8.5 percent to 9.14 yuan.
Markets in China have been bracing for a rate hike since the second quarter, when talk of the move accelerated after Beijing showed resolve in cooling over-investment in sectors of the economy such as autos and steel, cracking down on credit.
The Shanghai composite index had shed 25.7 of its value since early April.
Bank stocks outperformed on Friday on expectations the rate hike - and the removal of caps on rates charged for loans - would boost margins for an industry that depends on interest income for the vast majority of its earnings.
Merchants Bank, China's largest listed lender, gained 1.1 percent to 8.85 yuan. It begins issuing 6.5 billion yuan ($785.4 million) in five-year convertible bonds on Friday to shore up capital.
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