China stocks extend losses on Wednesday (Third Lead)

Chinese stocks dived for a third consecutive day on Wednesday with the benchmark Shanghai Composite Index reversing sharp early losses before closing 0.2 percent lower at 3,160.17 points.

The Shenzhen Component Index dipped 1.06 percent to finish at 10,054.80 points, and the ChiNext Index, China's NASDAQ-style board of growth enterprises, lost 1.82 percent to close at 1,855.03 points, Xinhua reported.

Total turnover on the two bourses was $117.7 billion (748.76 billion yuan), up from Tuesday's 725.6 billion yuan.

Winners outnumbered losers by 668 to 229 in Shanghai, and by 1,105 to 268 in Shenzhen.

Shares in the internet sector, banks and food security led the gains, while oil stocks were among the biggest losers.

The major index slipped more than 4 percent right after the opening bell, indicating deepening downward pressure on the world's second largest economy.

The decline narrowed later, led by a rebound in banking stocks. Industrial and Commercial Bank of China, the country's largest commercial bank, surged by 10 percent daily limit for the first time since 2008.

Official data released on Tuesday showed China's manufacturing purchasing managers' index (PMI) fell to its lowest level in three years in August, at 49.7, also down from 50 for July, suggesting contracting pressure on the manufacturing sector.

"The key to boosting the stock market is to restore investors' confidence by establishing a favourable environment," said Shenwan Hongyuan Securities analyst Gui Haoming.

The investigation into illegal activities is important to ensure investors are protected, and stable improvement in policies and regulations could raise enthusiasm, Gui added.

The government has ramped up efforts to bolster the economy and promote the steady and healthy development of the capital market.

The People's Bank of China, the central bank, on Tuesday conducted 150 billion yuan of seven-day reverse repurchase agreements (repo), a process in which the central bank purchases securities from banks with an agreement to resell them in the future, in an continuous effort to pump billions of yuan into the financial system to ease liquidity strains.

The State Council, China's cabinet, announced later on Tuesday that China will set up a $9.4 billion (60-billion-yuan) fund to support small and medium-sized enterprises.

On Monday evening, the central government issued a notice encouraging mergers, cash bonuses and share repurchases by listed companies to expedite reform of state-owned enterprises and stabilise the stock market.