SHANGHAI'S key stock index extended losses by nearly 3 percent yesterday, led by lenders which have suffered the biggest fallout from the Wall Street credit turmoil.
The benchmark Shanghai Composite Index, which tracks yuan-denominated A shares and hard-currency B shares, fell 2.90 percent, or 57.59 points to a 22-month low of 1,929.05 points.
Losers outnumbered gainers 642 to 214 and 22 remained unchanged. Turnover in the local market shrank to 32.98 billion yuan (US$4.85 billion), compared with 35 billion yuan on Tuesday.
Bank of China and Merchants Bank Co led the decline in the banking sector as they reportedly held Lehman Brothers' bonds.
''Concerns are growing that more domestic banks will be involved in the shock wave from the United States credit crisis. Markets experienced broad selling off of bank shares in panic,'' said Wang Fen from Shanghai Securities Co.
China Merchants Bank Co, the nation's most profitable lender, plummeted 9.96 percent to 14.47 yuan after saying it held US$70 million of debt issued by Lehman Brothers Holdings Inc.
Bank of China Ltd, the nation's third largest, fell 6.31 percent to 2.97 yuan. The bank had US$50 million of loans to Lehman, according to court documents filed by the US brokerage.
Mainland banks are also facing narrower profits margins after lending rates were scaled down by the People's Bank of China to lift the economy earlier this week. More than half of bankers tumbled more than 7 percent.
''The interest rate cut is a signal of the government's intention to loosen the tight monetary policy. However, the move is not intended to directly boost the stock markets and it hurts the profitability of bankers,'' said Qian Xiangjin from Citic Kington Securities Co.
Industrial and Commercial Bank of China and China Construction Bank Corp both plunged by the 10-percent daily cap to 3.42 yuan and 3.83 yuan respectively. Industrial and Commercial Bank of China gained the license to open its New York branch on Tuesday.
Bucking the downward trend, PetroChina and Sinopec gained due to falling crude oil prices.
Crude oil decreased to US$92 on concerns a slowdown of the global economy would dent demand for energy.
PetroChina climbed 1.07 percent to 10.39 yuan while China Petroleum & Chemical Corp advanced 1.86 percent to 9.30 yuan.
''Shares will very likely continue to fall as the government's move to lift the economy stirs more concerns over economic slowdown and investors expect falling profits of listed companies,'' Wang said.