The index, grouping hard currency B shares open to foreign investors and yuan-denominated A shares, the benchmark Shanghai composite index, grouping hard currency B shares open to foreign investors and yuan-denominated A shares, fell 0.74 percent, or 11.03 points, to 1,486.024 points.

The Shenzhen sub-index also dropped 0.09 percent or 2.82 percent to 3224.81.

The index has fallen 5.15 percent over the past two weeks as signs increased the government would crack down on the illegal use of bank loans in the markets, which analysts said could squeeze liquidity.

"Market talk of tightened government control on money flowing into stocks has triggered investor worries," said analyst Dong Bin at China Securities.

"Market sentiment is weak and we expect share indices to continue to fall in the near term," he said.

Analyst Hu Weitao at Eagle Securities said he expected a medium-term downtrend, although some short-term technical rebounds were also likely.

A shares in Biocause Pharmaceutical, which had reported an 85 percent fall in its 2002 earnings, was the market's biggest decliner and dropped its 10 percent daily limit to 5.63 yuan (68 US cents).

Brokers said investors were worried about the first-half performances of some companies, including Biocause, as they reported poor earnings for 2002.

China's listed companies are required to report interim results from July 1 to August 31.

Shenzhen's B share index fell 0.87 percent to 215.74 points and Shanghai's slipped 0.75 percent to 112.301.

Brewer and canned-food producer Shenbao Industrial was Shenzhen's biggest B-share decliner, falling 5.36 percent to HK$4.59 (58.84 US cents) after the company forecast last week its 2003 interim earnings would fall more than 50 percent.

But auto stocks, which have surged since late 2002, bucked the downtrend because of booming domestic demand for cars.

Shanghai Automotive's A shares ended up 1.11 percent at 11.89 yuan (US$1.44) and B shares in Chang'an Auto, China's biggest minivan maker, rose 2.26 percent to US$6.33.

Both stocks have doubled since the beginning of this year.

Shanghai's A-share index dropped 0.74 percent to 1,555.906 points while its Shenzhen counterpart fell 0.76 percent to 428.32.

China's yuan ended a notch softer at 8.2775 against the US dollar yesterday as demand for dollars kept the national currency stable after a brief weakening earlier last week, dealers said.

The yuan moved narrowly throughout the session, touching only one other rate of 8.2774 - Friday's closing level - as turnover fell to a thin US$450 million from Friday's US$500 million.

The yuan had weakened to its lowest closing level for a year at 8.2776 earlier last week, but it remained at high levels within a government-set trading range.

The central People's Bank of China has enforced a wafer-thin range of 8.2760 to 8.2800 for the yuan, which is not fully convertible on the capital account and whose movements are driven mainly by trade flows.

(China Daily July 1, 2003)