Chinese stocks ended an extremely volatile session down more than 3 per cent on Monday, as investors shrugged off fresh monetary easing and dumped shares in panic.

The CSI300 index of the largest listed companies in Shanghai and Shenzhen fell 3.3 per cent to 4,191.55, while the Shanghai Composite Index also lost 3.3 per cent to 4,053.03 points.

On Saturday, China had cut the lending rates and reserve requirements at some banks, after mainland markets plunged the day before.

On Monday, main indexes tumbled more than 7 per cent at one point, but erased some losses after a state-backed provider of margin financing moved to temper the sell-off, saying the risk of margin trading is controllable and margin calls are relatively small.

Meanwhile, the People’s Bank of China (PBOC) said one of the goals of the week-end policy adjustments, which included simultaneous cuts to interest rates and a targeted reduction to some banks’ reserve requirements, was to calm stock market fluctuations.

Instead, Chinese bourses saw one of their most volatile trading sessions to date, with major benchmarks see-sawing in and out of positive and negative territory over the course of minutes.

“The market is still fragile because the clean-up of grey-market margin financing is still going on, and last week’s market tumble triggered some margin calls and some investors are under pressure to sell,’’ said Samuel Chien, partner of Shanghai-based hedge fund BoomTrend Investment Management Co.

“It’s very natural, but many fund managers in China haven’t experienced this kind of volatility in a highly-leveraged stock market, so they’re at a loss.’’

Economists and analysts also expressed scepticism that the latest easing move would provide a durable floor under the market, given how sharply and quickly it had risen — in particular small cap stocks — and the lack of fundamental justifications for valuations.

“Short-term bounce aside, we doubt that the latest cuts will trigger any sustained rally,’’ wrote Bank of American Merrill Lynch analysts in a research note, noting that the recent series of rate cuts have resulted in steadily weaker stock market reactions.

Sam Chi Yung, a strategist at Delta Asia Securities Ltd said that Hong Kong was reacting to negative developments in Greece as well as China. Asian investors moved toward safe haven currencies and assets on Monday as Athens faced a debt default.

Money market rates

While stocks floundered, Chinese money market rates dropped sharply, due both to the easing move and to the end of cyclical cash pressure at the end of the first half reporting period.

The benchmark seven-day bond repurchase contract dropped to 2.69 per cent from 2.9292 per cent previously. The loan prime rate and key interest rate swaps (IRS) also declined.

The yuan, however, remained steady, with traders saying the central bank is holding it stable as it tries to position the currency for inclusion in the International Monetary Fund’s currency basket.

However, some warned that the collapse in stock markets might negatively impact China’s IMF application.

“We believe that PBoC prefers to see a strong A-share market, so capital doesn’t take flight, leading up to the SDR vote in October,’’ wrote the BofA analysts.

“As a result, if the market continues to be under pressure, it may do more.’’

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