Panic sets-in as Chinese stocks continue to tumble
Chinese stocks fell for a third straight day on Tuesday following their sharpest one-day drop in three months.

The benchmark Shanghai Composite Index plunged 7.2 per cent in early trading but later recovered some lost ground. By midday it was down 5.7 per cent at 3,462.52, following an 8.3 per cent fall the previous day. The Shenzhen Composite Index for China's smaller second market fell 6.1 per cent by midday to 976.38.

Regional market reaction was muted for a second day, with Japan's benchmark index up 0.35 per cent and Hong Kong shares down 0.3 per cent.

Dubbed "Black Monday" in the local press, Monday's decline was the sharpest since an 8.8-per cent drop 27 February that triggered a global market sell-off. But this week, international stock markets have ignored the declines in Mainland Chinese stocks and most Asian markets and Wall Street also registering small gains on Monday.

Panic set in in reaction to government efforts to cool the booming stock market and avert a price bubble. The stock market boom has prompted millions of first-time Chinese investors to jump into the market, tapping savings and retirement accounts and mortgaging homes to buy stocks. Authorities are worried that the new money is fueling a bubble in prices.

Chinese investors dumped shares in reaction to a government decision to triple a tax on stock trades last Wednesday, viewing the move as a signal regulators are determined to cool frenzied trading that had driven up prices nearly 60 per cent since the start of the year, following a 130 per cent surge in 2006.

The tax hike on stock trades — from 0.1 per cent to 0.3 per cent — appeared to have accomplished what earlier, milder market-cooling measures did not: By midday Tuesday, the benchmark Shanghai index was down 20 percent from its record high of 4,334.92, hit 29 May. But it was still up 28.4 per cent for the year so far.
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