SHANGHAI (REUTERS) - An opening rally in Chinese stocks petered out quickly on Monday as a surprising, and aggressive, easing in monetary policy appeared to fail to inspire investors to move back into the market.
After suffering their largest daily falls since 2008 last week, the CSI300 index and the Shanghai Composite Index opened up sharply over 2 percent.
But the markets gave up their gains and sank into negative territory within 15 minutes.
The CSI300 index fell 0.7 per cent to 4,306.70 points by 0143 GMT, while the Shanghai Composite Index lost 1.5 per cent to 4,130.26 points.
The Hang Seng index dropped 1.7 per cent, to 26,223.86 points, while the Hong Kong China Enterprises Index lost 2.0 per cent, to 12,832.50.
Both indices had slumped over 7 per cent on Friday and are down nearly 20 per cent from their peak in early June.
Chinese markets have been subject to wild swings almost from minute to minute since a massive rally began in November, making them the most volatile in the world.
The People's Bank of China (PBOC) cut lending rates for the fourth time since November and trimmed the amount of cash that some banks must hold as reserves, stepping up efforts to support an economy that is headed for its poorest performance in a quarter century.
The last time the central bank simultaneously cut interest rates and reserve requirements was at the height of the global financial crisis in late 2008.
The timing of the moves led some it was aimed mostly at calming investors following a 20 per cent plunge in the country's stock markets over the last two weeks.
"We think that the government aims to support both the real economy and the capital market," said Dong Tao, an analyst at Credit Suisse. "The timing of the PBoC's move is rather market-friendly and seems to incorporate the goal of reducing market volatility and providing support for market sentiment."
The easing was timely given investors globally were spooked by news that Greek debt talks had broken down and Athens had called a referendum on the proposals for July 5 while imposing capital controls at home.
Shares in Japan were down 2 per cent as safe-haven flows pushed the yen higher and sovereign bonds yields lower.
An all-out crash in Chinese stocks would have had major implications on Beijing's push to open up its markets, most imminently a plan to link the Hong Kong exchange with China's smaller Shenzhen bourse.
It could also weigh on the already struggling broader economy, given the high level of market participation by retail investors.
"We believe Beijing has renamed maintaining stable and relatively fast GDP growth as its top priority for the remainder of 2015," was the relatively optimistic take by analysts at Commonwealth Bank of Australia. "Given mounting pressures on every level of the government to revive growth, we are even more certain that China's economic growth will improve in the second half."
They also noted that China's cabinet had approved plans for the manager of the country's biggest pension fund to manage about 2 trillion yuan ($322 billion) for local authorities.
The move for the National Social Security Fund (NSSF) to manage the money could benefit the stock market.
Tommy Xie Dongming at OCBC Bank cautioned that leverage remained large and many investors could still be forced to sell to meet margin calls.
"We think further unwinding of margin trading taking advantage of any policy led rebound may continue to create volatility in China's equity market," he said.