An opening rally in Chinese stocks petered out quickly yesterday as a surprising, and aggressive, interest rate cut failed to inspire investors to move back into the market.
China's main stock markets slumped over 7pc on Friday and are down nearly 20pc from their peak in early June.
After suffering their largest daily falls since 2008 last week, the CSI300 index and the Shanghai Composite Index opened up sharply over 2pc yesterday. But the markets gave up their gains and sank into negative territory within 15 minutes.
The CSI300 index fell 0.7pc to 4,306.70 points, while the Shanghai Composite Index lost 1.5pc to 4,130.26 points.
The Hang Seng index dropped 1.7pc, to 26,223.86 points, while the Hong Kong China Enterprises Index lost 2pc, falling to 12,832.50.
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.
Over the weekend the People's Bank of China (PBOC) - the country's central bank - cut lending rates for the fourth time since November.
The bank also trimmed the amount of cash that some lenders 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 was aimed mostly at calming investors following a 20pc 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 that 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.
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.
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.