Shanghai stock index plunges more than 6 percent

SEOUL, South Korea (AP) – China’s Shanghai share index plunged more than 6 percent Tuesday in its biggest drop in three weeks. Other Asian stocks finished lower, while Europe got off to a weak start.

The Shanghai Composite Index fell 6.2 percent to 3,748.16. It was its largest fall since an 8.5 percent dive on July 27, which was its biggest slide in eight years.

European stocks opened lower. Britain’s FTSE 100 dropped 0.4 percent to 6,526.96 and Germany’s DAX was down 0.3 percent to 10,907.21. France’s CAC 40 declined 0.5 percent to 4,960.40. Futures augured a lackluster day for Wall Street. Both S&P futures and Dow futures fell 0.3 percent.

The plunge in Chinese shares came even as the government took support measures this summer as the index’s sizzling yearlong rally reached unsustainable heights and began a dramatic fall in June. To halt the fall, the government imposed a ban on major shareholders from selling any of their shares.

But the stability was short-lived as the sell-offs restarted, rattling other financial markets.

Chinese stocks were hurt by rumors that an expected reform plan for state-owned industry might be less ambitious than investors want, said Guo Yanhong, a market strategist for Founder Securities. He said that was compounded by concerns that last week’s change in exchange rate policy might accelerate flows of capital out of China.

“The mentality of the investors is still fragile,” said Guo. “They won’t hesitate to sell their holdings and get out of the market fast whenever they expect there will be a big fall.”

The weak Shanghai stock market underlines persistent worries about China’s economic growth.

China’s surprise move last week to devalue the yuan is expected to aid Chinese exports and help make the Chinese currency more responsive to market forecasts. But it also renewed questions about the outlook of the world’s second-largest economy. The prices of oil, metal and other commodities fell as global demand was expected to be weak.

The Chinese currency has remained stable this week following Beijing’s move last week to devalue its tightly controlled yuan. But there is an expectation for a further slide in the yuan, which prompted investors to sell Chinese assets, including stocks, before their values fall further, said Angus Nicholson, a market analyst at IG.

Other Asian stock markets finished lower. Japan’s Nikkei 225 dipped 0.3 percent to 20,554.47 and South Korea’s Kospi declined 0.6 percent to 1,956.26. Hong Kong’s Hang Seng index sank 1.4 percent to 23,474.97 while Australia’s S&P/ASX 200 fell 1.2 percent to 5,303.10. Stocks in Taiwan and Southeast Asia also fell.

In energy markets, benchmark U.S. crude fell 32 cents at $41.55 per barrel in electronic trading on the New York Mercantile Exchange. The contract declined 63 cents to close at $41.87 on Monday after data showed growth contracted in Japan, the world’s third-largest oil consumer. Brent crude, a benchmark for international oils used by many U.S. refineries, fell 36 cents at $48.38.

In currencies, the dollar fell to 124.273 yen from 124.448 yen while the euro weakened to $1.1068 from $1.1077.