Chinese shares tumbled more than 2 percent on Wednesday as investors reacted to concerns about further government measures to control economic growth.
The key Shanghai index, which covers both A and B shares listed on the Shanghai Stock Exchange, passed 4,300 points at midday, but fell 2.07 percent to close at 4,181.32 on a turnover of 195.9 billion yuan (25.4 billion U.S. dollars).
The Shenzhen Component Index on the nation's smaller bourse dropped 1.6 percent, or 229.17 points to end at 14,107.23 on a turnover of 112.3 billion yuan (14.6 billion U.S. dollars).
Bank shares suffered losses, with the Industrial and Commercial Bank of China down 2.48 percent to 5.11 yuan, China Merchants Bank dropping 4.52 percent to 23.02 yuan and the Fujian-based Industrial Bank falling 6.16 percent to 31.84 yuan.
"The Chinese authorities appear poised to initiate a new round of macroeconomic tightening controls to guard against the risk of generalized economic overheating," according to a Morgan Stanley research paper obtained on Wednesday.
However, Morgan Stanley in the paper raised the 2007 GDP forecasts from 9.3 to 10.5 percent, given the country's stronger-than-expected development in the first five months of the year and a more favorable external environment.
The paper said the data till May indicated very buoyant activity in almost every aspect of the economy, including fixed-asset investment, retail sales, external trade, and industrial production.
The central parity rate for the yuan, also known as the Renminbi (RMB), reached 7.618 to one U.S. dollar on Wednesday, gaining 472 basis points from the previous day's price of 7.6652.