Fresh efforts by Chinese regulators to support the market - an announcement that margin trade and short-selling of shares would soon be launched on a trial basis, and the reopening of the medium-term corporate bills market - slowed but could not halt the drop, analysts said.

'People are worried about the impact of the global credit crisis on China, and the market is playing catch-up to overseas markets which fell sharply during the holiday,' said He Weijiang at Central China Securities.

'Without the latest government steps, the market would have fallen even more.' The Shanghai Composite Index ended down 5.23 per cent at 2,173.738 points, just off the day's low of 2,172.569. During the week that the Chinese market was closed, the Dow Jones Industrial Average sank 7.34 per cent.

Falling Shanghai stocks outnumbered gainers by 781 to 143 on Monday, while turnover in Shanghai A shares was a moderate 47.2 billion yuan (S$10 billion).

Banks were particularly weak with the biggest bank, Industrial & Commercial Bank of China, down 6.44 per cent to 4.07 yuan.

Oil refining giant Sinopec sank 6.46 per cent to 10.00 yuan despite a slide in global oil prices over the past week, which could improve its refining margins. Major metals producer Aluminium Corp of China dropped 7.12 per cent to 8.62 yuan.

Angang Steel tumbled its 10 per cent daily limit to 7.92 yuan.

The official Xinhua news agency reported on Friday that four steel groups - Angang, Shougang, Shandong and Hebei - were in talks to reduce their crude steel output by a total of 20 per cent, in a bid to cut ore imports and support prices.

In the days before the holiday, the Shanghai index rebounded 21 percent from a 22-month low, buoyed by an unprecedented package of government measures to support the market, including purchases of shares from the market by a government fund.

Support steps

In a fresh effort to aid stocks, the securities regulator announced on Sunday that a small group of brokerages would soon be allowed to do margin buying and short-selling business. It said it expected margin buying to greatly exceed short-selling, partly because brokerages had only a small amount of shares available to lend.

Meanwhile, the central bank said it would let companies resume issuing medium-term commercial bills, after a three-month suspension that was apparently due to a dispute among regulators.

The official China Securities Journal said the resumption would help provide big state-run firms with money to buy shares in their listed units from the stock market.

'We expect the programme to have a significant impact on cutting corporations' funding costs and shoring up stock prices,' Merrill Lynch said in a report, adding that the resumption of medium-term bills issuance would have a similar effect to an expansion of banks' lending quotas.

Brokerage shares climbed on Monday because of the margin trade announcement, with Haitong Securities, expected to be among the first batch of securities firms participating in the scheme, jumping its 10 per cent limit to 23.67 yuan.

But Central China Securities's He and other analysts said the weakness of the global economy meant further official steps might be needed in coming weeks - conceivably an easing of Chinese fiscal or monetary policy - to avert an extended pull-back by the market.

Among other gainers on Monday, Ping An Insurance rose 1.00 per cent to 33.39 yuan as investors welcomed its decision to scrap a US$3 billion (S$4.38 billion) deal to buy half of the asset management arm of troubled European financial group Fortis.

Ping An said on Sunday it would report an impairment loss of about 15.7 billion yuan on its existing investment in Fortis. It said the loss would have a material impact on its net profit, but added that its capital position and solvency margin would remain 'solid and sufficient'.

Sinosteel Anhui Tianyuan Technology Co outperformed, falling only 1.47 percent to 5.35 yuan, after saying its parent group had bought shares in it from the market on Sept. 26, raising its stake to 40.286 percent from 40.000 per cent. The group said it would continue purchases in the next 12 months, raising its stake by up to 2 percentage points. -- REUTERS