China's stock markets halted for day as shares tumble 7 pct

BEIJING, Jan. 7 -- Trading on the Shanghai and Shenzhen bourses stopped early on Thursday after shares tumbled 7 percent within the first 30 minutes of trading, triggering the circuit breaker mechanism.

It was the shortest trading time in China's capital market history.

This is the second time the circuit breaker has halted trading this week, after a similar plunge on Monday triggered the circuit breaker, the first day the mechanism took effect.

The mechanism follows the Hushen 300 Index, which reflects the performance of bluechips listed in Shanghai and Shenzhen. When the index rises or falls by 5 percent, the circuit breaker imposes a 15-minute suspension in trading. If the Hushen 300 declines by over 7 percent, trading is halted for the day.

At 9:42 a.m., trading was suspended for 15 minutes after the Hushen 300 dropped by over 5 percent. The index dived a further 2 percent in just 2 minutes after reopening at 9:57 a.m., and trading was ceased.

In the end, the Hushen 300 Index plunged 7.21 percent to close at 3,284.74 points.

The benchmark Shanghai Composite Index was down 7.32 percent to close at 3,115.89 points. The smaller Shenzhen index lost 8.35 percent to close at 10745.47 points. The ChiNext Index, China's NASDAQ-style board of growth enterprises, dropped 8.66 percent to close at 2,254.52 points.

Market sentiment is rattled, as a six-month ban on share sales imposed on listed companies' major shareholders during the stock market rout this summer will expire on Friday. The imminent deadline of the rule raised possibilities of a massive sell-off.

China Securities Regulatory Commission (CSRC) promised it would soon roll out new measures to better standardize stock sales.

On Thursday, it took an hour for the securities regulator to unveil a highly anticipated rule to limit big shareholders from selling their stocks after the market was suspended for the day.

According to the new rule, controlling shareholders and managers who hold more than 5 percent of a company's shares were ordered not to sell more than one percent of their holdings within three months. Those who want to reduce their holdings should publish their plans 15 trading days beforehand.

Lowered expectations in the capital market also echo a steep fall in the yuan exchange rate. The central parity rate of the Chinese currency, the renminbi or yuan, depreciated to its weakest point against the U.S. dollar in nearly five years, new data showed on Thursday.

The yuan's central parity rate lost 332 basis points to 6.5646 against the U.S. dollar on Thursday, the lowest level since March 18, 2011, data from the China Foreign Exchange Trading System (CFETS) showed.

As the heavy loss in the stock market this week coincided with the new circuit breaker mechanism, there was also debate over whether the mechanism has produced the desired effects.

The circuit breaker mechanism is designed to calm investors, but not to control fluctuation range of the indices, according to Hu Xiaohui, a researcher at the securities institute of Tencent.

However, the circuit breaker mechanism sacrifices the liquidity of the capital market for steadier share prices, which deepened the market's funk, said Hu, who called for adjustment to the mechanism.