In what analysts described as the beginning of another round of market adjustments, the benchmark Shanghai Composite Index yesterday fell 2.37 percent when the market reopened after the one-week break for Spring Festival.
During the break, other markets in the region were hit hard by deepening fears of a United States' economic recession, with the fallout of the subprime mortgage crisis seen to be spreading fast to other sectors.
The Hang Seng Index in Hong Kong fell 7.6 percent during the break.
"It's already a bear market in my view," Zhang Yang, strategist at Orient Securities, said.
"It's hard for A shares to maintain their high valuations when other markets are falling and economic growth is slowing."
He said the index might fall below 4,000 points in coming months.
In Shanghai, many big caps in finance, real estate, oil and steel took the biggest blow yesterday, weighing down the benchmark indicator.
The Shanghai Composite Index dropped 108.9 points to close at 4490.72, with losing stocks outnumbering the gainers by 579 to 301. The smaller Shenzhen Component Index fell 2.12 percent to close at 16502.4 points.
Turnover on the Shanghai bourse totaled 62.45 billion yuan ($8.68 billion), down 34.1 percent from a week ago, while that on the Shenzhen Stock Exchange fell 33.5 percent to 27.1 billion yuan.
The low turnover was a reflection of the more cautious approach of investors in view of the uncertainties hanging over both overseas and domestic markets, analysts said.
They attributed the weak performance to a combination of factors, ranging from the increasing worries about further falls in overseas markets to reduced investor confidence in earnings of some listed companies hit hard by the blizzards in some parts of China.
Zhang Fan, an analyst at Changjiang Securities in Shanghai, said: "The market is worried the fallout of the US credit crisis on the global financial system will not ease until the leading financial institutions in US and Europe release their annual reports in March."
Some analysts said the prolonged bad weather since late January would add to pressure on listed companies' earnings for the first quarter.
"Investors' rising concern about the possible reduction in earnings of some listed companies also dragged down the market," Zhang Xiaojun, an analyst at CITIC China Securities in Beijing, said.
The brokerage also forecast disappointing first-quarter results by listed firms, citing rising prices of resources and disruption caused by the winter weather in recent weeks.
Among the big losers, CITIC Securities slumped 5.05 percent to 69.9 yuan, while Huaxia Bank fell 5.9 percent to close at 18.97 yuan. Wuhan Iron and Steel sunk 4.84 percent to 20.07 yuan, while PetroChina fell 3.2 percent to 23.92 yuan.
Source: China Daily/Agencies