Shanghai: Volatility shook Chinese stock markets on Tuesday, as the Shanghai index dropped more than three percent on concerns over regulatory uncertainty and slowing growth before recovering, a day after authorities halted trading to arrest falling prices.
The Shanghai market slumped 6.86 percent on Monday 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, 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 dispose of.
"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."
By the break on Tuesday, the benchmark Shanghai Composite Index was up 0.41 percent, or 13.66 points, at 3,309.92 after falling as low as 3.18 percent in morning trade.
The Shenzhen Composite Index, which tracks stocks on China's second exchange, was down 0.53 percent, or 11.23 points, at 2,107.93, gaining back most lost ground after slipping 5.03 percent at one point.
Hong Kong's benchmark Hang Seng Index dipped 3.64 points to 21,323.48 by lunch -- having swung in and out of positive territory through the morning.
The market watchdog, the China Securities Regulatory Commission (CSRC), sought to calm the panic by defending the circuit breaker. Under the system, a five percent drop in the CSI300 index, which covers both bourses, triggers an automatic 15-minute trading halt.
A fall of seven percent closes the exchanges for the rest of the day.
"The circuit breaker has a big impact in stabilising the market and its main function is to provide a 'cooling off period' for the market to avoid or reduce rushed decision made during wide swings," it said in a statement on its verified microblog.
The CSRC also addressed Friday's looming expiry of a ban on share sales by owners of more than five percent of a company -- introduced in July to help defend prices against a market rout.
The watchdog announced it was formulating regulations on major shareholders' selling, but said the rules will be announced "soon", leaving open whether the ban will be lifted in line with the original deadline.