Chinese share prices plunged 5.25 percent on Thursday, the biggest drop since June 4's slide of 8 percent, with investors baleful eyeing the Chinese government's determination to mop up excess liquidity.

The benchmark Shanghai Composite Index, which covers both A- and B-shares listed on the Shanghai Stock Exchange, plummeted 5.25 percent, or 200.3 points, to close at 3,615.87 points.

The Shenzhen Component Index, which covers both A- and B-shares listed on the nation's smaller bourse, fell by 5.8 percent, or 725.56 points, to end at 11,783.58 points.

Chinese officials from the Ministry of Finance said on Thursday the massive issuance of 1.55 trillion yuan of special treasury bonds would not undermine financial markets.

But investors feared the move would mop up liquidity, and the sentiment was aggravated by reports saying the first batch of the special bond, worth about 500 billion yuan, would be issued soon.

The State Administration of Foreign Exchange said it would authorize domestic fund management and securities companies to invest in overseas securities business, as it expanded the scope of the Qualified Domestic Institutional Investor (QDII).

Analysts said it may attract investors to the Hong Kong exchange, where the share prices of companies listed on mainland markets are usually lower.

The combined turnover registered at the two bourses stood at a relatively low 117.7 billion yuan (US$15.5 billion).

Newly-opened A-share accounts on the Shanghai and Shenzhen bourses continued to drop and hit a record low of 79,977 on Tuesday after recording 100,000 a day earlier, according to statistics from the China Securities Depository and Clearing Co.

The Hushen 300 Index, which tracks 300 companies on the Shanghai and Shenzhen stock exchanges, closed at 3,537.44 points, down 206.14 points, or 5.51 percent, from the previous day's trading.

(Xinhua News Agency July 6, 2007)