Most Asian bourses suffered further falls yesterday as Chinese equities slid for a third straight day, following their worst one-day sell-off in eight years on Monday.
Still, it was a much calmer day than Monday, with Hong Kong and Taiwan staging rebounds.
Yesterday's drop in Chinese equities underscored fears over whether Beijing's aggressive pump- priming intervention to stem the market rout is sustainable.
Shanghai closed 1.7 per cent lower yesterday after gyrating between gains of more than 1 per cent and losses of up to 5 per cent, even as the authorities unveiled fresh measures to stabilise markets and to avert "systemic risks".
Shanghai stocks have shed 11 per cent since last Friday and are down 29 per cent from their highest point this year on June 12.
China's top securities regulator warned that the authorities would deal severely with anyone engaged in the "malicious shorting of stocks", in an attempt to stave off a fresh rout.
CMC Markets analyst Nicholas Teo said: "Things were a bit more calm (yesterday). At least we didn't see another 8 per cent plunge, as investors took advantage of volatility to square off their positions."
Shenzhen lost 2.2 per cent. Hong Kong rebounded 0.6 per cent as investors piled into blue chips "which are trading at around 10.6 times price earnings (PE) ratio, compared with Shanghai stocks, which are trading at an average of 18.7 times PE", he said.
Fuelling Monday's sharp sell-off were worries over the health of China's economy and concerns that stocks that have been bought with high volumes of margin loans still face more downside.
Fears of a quick withdrawal of the government's support measures after the International Monetary Fund urged China to allow market forces to sort themselves out were another factor, IG Markets strategist Bernard Aw said.
In an effort to quell such fears, the regulator said state-owned fund China Securities Finance Corp, which has been buying up battered shares, has not "exited" the market. The China Securities Regulatory Commission said that the government will increase purchases of stocks in an effort to support the equity market, while the central bank injected cash into money markets and hinted at further monetary easing.
Meanwhile, the turmoil and commodities market rout have fanned speculation that the United States Federal Reserve may keep interest rates lower for longer. The Fed's two-day policy meeting ends later today with the market eyeing signals over whether September or December is the most likely date for "lift-off".
Singapore's market shed nearly 1 per cent, weighed down by rate hike concerns and a poor corporate earnings outlook here and in the US. Malaysia fell 0.6 per cent, Thailand shed 0.3 per cent and Jakarta was down 1.2 per cent.
"Globally, we are at the turning point of a seven-year bull run that had been fuelled by cheap, easy money," Mr Teo said.
So far this year, most Asian bourses, except Shanghai, Shenzhen and Hong Kong, are under water. Singapore is down 2.66 per cent, Malaysia is off 3.03 per cent, Thailand is down 5.07 per cent and Jakarta has shed 10.07 per cent.