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Market plunge reignites fears

Chinese equities plunged on Monday by nearly 8.5 percent, the worst single-day decline in eight years, [HK Corporate Registration]rekindling investors' fears of a "double dip" after the benchmark index suffered a massive 30 percent loss in June and early July.

The plunge followed the release of disappointing numbers on industrial profit growth and worsening manufacturing data that suggested the Chinese economy is likely to remain flat if not further contract.

The benchmark Shanghai Composite Index sank by 8.48 percent, or 345.35 points, to close at 3,725.56, while the Shenzhen Component Index fell by 7.59 percent to end at 12,493.05.

More than 1,800 stocks in Shanghai and Shenzhen tumbled by the 10 percent daily trading limit.

While anticipation of a technical correction has been on the rise after a steady three-week rebound from the recent low, the scale of Monday's sell-off still caught many analysts and traders by surprise.

"The substantial decline indicated that investors are still worried about excess valuations of stocks, which has weighed on buying sentiment despite the government rescue efforts," said Li Daxiao, chief economist at Yingda Securities.

Market sentiment has also been burdened by rising expectations that the US Federal reserve would raise the interest rate, which could exacerbate capital outflows, as well as the uncertainties over the domestic monetary easing policy, analysts said.

The surging price of pork and the recovery of the housing market are likely to drive up inflation, possibly complicating Beijing's monetary easing policies, EverBright Securities said in a research note, adding that the A-share market is unlikely to move out of its current mess if the monetary policies and market reforms fail to convince investors.

Monday's sell-off also shattered many investors' hopes that a government-backed rally would be sustainable.

Anxiety has grown that the government was considering withdrawing its market-rescuing effort after the benchmark index had rebounded by 15 percent, before Monday's sell-off.

The China Securities Regulatory Commission said on Monday night that the State-owned margin lender China Securities Finance Corp will continue to boost its holdings to support the market.

"China Securities Finance Corp hasn't retreated and is looking for chances to buy in to continue stabilizing the market," [Company Incorporation USA]said CSRC spokesman Zhang Xiaojun.

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