The A-share market prolonged its weakness during Christmas with a 1.58 percent drop on Thursday, as the central bank spooked investors by halting its scheduled Thursday money market operation.

The year-to-date gain was trimmed to 5.58 percent, down from around 10 percent 12 trading days ago on Dec 10.

The benchmark Shanghai Composite Index was down 1.58 percent, 33 points, to 2,073. The Shenzhen Component Index lost 2.46 percent to 7,897 points. The ChiNext Index reversed gains in the past two days and ended Thursday with a 1.46 percent loss.

A fear of tight liquidity is one of the reasons that caused the recent retreat in the stock market. Zhang Qi, [Hong Kong Company Registration Guide]a Shanghai-based stock analyst with Haitong Securities Co Ltd.

Investors spooked by PBOC's latest money market inaction

The People's Bank of China injected liquidity into the banking system on Tuesday by selling 29 billion yuan ($4.8 billion) of seven-day reverse repurchase agreements. The PBOC took the action after money market rates grew to a level reminiscent of the cash crunch in June, when some rates soared to an astronomical level of more than 30 percent.

The PBOC normally conducts open market operations on Tuesdays and Thursdays. But the cash injection was the first time since Dec 3 that it proceeded with the schedule. The injection brought down money market rates, with the benchmark seven-day repurchase agreement opening at 5.55 percent on Tuesday, down sharply from a closing level of 8.9 percent on Monday.

The rate was 5.33 percent upon the close on Thursday, still higher than the 4.5 percent earlier this month.

The fact that the PBOC didn't operate in the money market on Thursday had investors worrying rates will go up again soon, said Zhang.

The PBOC said in a statement on Dec 20 through its official micro-blog account that excess reserves in the banking system are at a historic high level of more than 1.5 trillion yuan. It urged lenders to strengthen liquidity management. The statement is widely interpreted by the market as a signal that the PBOC won't as a matter of course pour money into the banking system.

Investors are also worried that the scheduled initial public offering resumption in January will siphon[Businesses Registration] funds away from existing shares and cause a retreat in the market. The China Securities Regulatory Commission has said at least 50 companies will go public in January after a 14-month hiatus.

China Investment Securities Co Ltd said in a report on Thursday that the Shanghai Composite Index will fluctuate between 2,000 to 2,600 points in 2014. It cited the central bank tightening as one of the key risk factors. It forecast a rally between February and March, before a retreat in the second quarter.