Chinese stock markets suspended as shares tumble

Trading on China's stock markets were suspended on Monday after shares tumbled seven percent, triggering the new "circuit breaker" mechanism on the first trading day of 2016.

The early end to trading on Shanghai and Shenzhen bourses, the first in the history of China's stock markets, coincided with the launch of the automatic circuit breaker, designed to contain wild swings in the markets, Xinhua news agency reported.

The mechanism follows the Hushen 300 Index, which reflects the performance of both Shanghai and Shenzhen traded stocks.

When the Hushen 300 rises or falls by 5 percent, the circuit breaker imposes a 15-minute suspension of trading. If fluctuations hit the 7-percent mark, trading is terminated for the day.

At 1.12 p.m., trading was suspended for 15 minutes and, immediately after reopening at 1.33 p.m., the index fell a further two percent where upon trading ceased.

When trading closed, the Shanghai Composite Index was down 6.85 percent, the smaller Shenzhen index down 8.16 percent, and the ChiNext Index, China's NASDAQ-style board of growth enterprises, down 8.21 percent. The sub-index for financial heavyweights, which tracks 51 banks and insurers, dropped 8.3 percent, with 16 financial firms falling by the daily limit of 10 percent.

CITIC Securities, China's largest brokerage firm, lost 9.82 percent to 17.45 yuan per share. Bank of China fell 3.49 percent to 3.87 yuan. China Construction Bank lost 3.11 percent to 5.6 yuan. China Life, one of the world's biggest life insurers by market value, lost 7.21 percent.

The decline is generally being attributed to downbeat market sentiment stemming from weaker than expected manufacturing activity in December and a steep fall in the yuan exchange rate on the day.

The Caixin General China Manufacturing Purchasing Managers' Index (PMI),released today, edged down to 48.2 in December from 48.6 in November.

The reading is the 10th month in a row below the 50-point level which demarcates contraction and expansion.

The market is also worried about the forthcoming annulment of a rule which restricts shareholders with holdings of more than five percent in a company in selling shares.

The rule came into force in July to prevent free falls in the markets and expires on Friday, raising the possibility of a substantial sell-off.

In addition, about 9.27 billion lock-up shares in 34 companies, worth around 95 billion yuan, will become tradable this week.