SHANGHAI'S key stock index dropped more than 3 percent yesterday to nearly a two-year low over concerns of a weak economic performance in the third quarter amid a gloomy outlook.

The Shanghai Composite Index fell 3.2 percent to end at 1,895.82 points, the lowest since November 14, 2006 when the benchmark closed at 1,888.24.

Losers outnumbered gainers 720 to 144 while 14 stocks were unchanged. Turnover shrank to 33.1 billion yuan (US$4.87 billion), from 39.8 billion yuan on Tuesday.

Concerns of a poor economic performance in the third quarter weighed heavily on the minds of investors, said Wen Lijun, an analyst at Nanjing Securities Co.

"The shrinking turnover shows investors are still cautious against the backdrop of a global financial crisis," Wen added.

PetroChina, the market's biggest component, slumped 5.71 percent to 11.22 yuan, and Sinopec plunged 3.59 percent to 8.33 yuan.

Real estate developers also fell after the National Development and Reform Commission yesterday said home prices rose at the slowest pace in at least three years.

Poly Real Estate tumbled 5.39 percent to 14.22 yuan and Shanghai-based Shimao Property slumped 5.86 percent to 5.14 yuan.

Huaneng Power International Inc dived 9.93 percent to 6.08 yuan, and GD Power Development Co slid 7.5 percent to 5.18 yuan. China Railway Group Ltd and China Railway Construction Corp both tumbled by the 10-percent daily cap.

Bucking the downward trend, shares of furniture, garment, toys and electronic appliance companies rose, thanks to higher tax rebates after the Ministry of Finance announced on Tuesday that China will raise the rebates on labor-intensive and high added-value products to help exporters overcome difficulties as global demand falters.

Qingdao Aucma Co climbed by 10 percent to 4.74 yuan, and Zhejiang Supor Co rose 5.72 percent to 10.35 yuan.

Shanghai Securities Co wrote the higher export-tax rebates will boost exporters' competitiveness.