Stocks closed lower on Thursday after swinging between gains and losses, as margin traders kept unwinding their leveraged position and trading turnover halved from its peak.

The benchmark Shanghai Composite Index closed at 3,705.77, down 2.2 percent, marking its fourth-time loss over the past five days, while the Shenzhen Component Index slumped 3.3 percent to 12,395.92.

The ChiNext Index, a Nasdaq-styled gauge tracking Shenzhen-listed growth enterprises, plunged 4.9 percent. Stocks such as video-streaming software platform Beijing Baofeng Technology Co and financial information system provider Amarsoft dived by the daily limit of 10 percent.

Banks and brokerages retreated in general, with Guosen Securities, Shanxi Securities and Founder Securities tumbling more than 6 percent. Ningbo Bank and Nanjing Bank fell 4.4 and 4 percent respectively.

Trading volumes at the two markets reached 1.1 trillion yuan, while the outstanding balance of margin trades at the Shanghai bourse dropped to a four-month low to 881.7 billion yuan as of Wednesday.

The Shanghai gauge swung nearly 200 points between gains and losses on Thursday before declining sharply in the last hour of trading. The retreat almost reversed Wednesday's rally, when regulators vowed to investigate into earlier "massive sell-off".

China's equity market experienced more sell-offs, which prompted further market concerns over its economic outlook for the second half of the year, said Nomura in a note released on Wednesday morning, adding that improvement in growth momentum will hold, driven by faster infrastructure investment, and monetary policy easing will continue.

The CSI 300 Index closed at 3,815.41 on Thursday, down 2.9 percent