The Chinese stock market on Friday suffered its second sharp decline in three days since the government raised the trading tax, closing 2.65 percent lower to hover above the 4,000-point mark.

The major Shanghai Composite Index, which tracks both yuan-denominated A shares and hard-currency B shares, closed at 4,000.74 points, down 108.91 points or 2.65 percent.

The volatile market had made considerable gains during the morning session but these were wiped out in the afternoon as the share prices of blue chip companies began to fall.

The smaller Shenzhen Component Index saw a 3.95-percent drop, closing at 12,432.69 points, down 511.54 points.

The Hushen 300 Index, reflecting the combined movements of the Shanghai and Shenzhen stock exchanges, closed much lower at 3,803.95 points, down 124 points or 3.16 percent.

The two bourses registered a combined turnover of 346.58 billion yuan (US$45 billion).

More than 700 stocks reported losses up to the daily limit of 10 percent on the two markets in Shanghai and Shenzhen.

Sinopec posted gains to close at 15.17 yuan (US$1.97). Both the Industrial and Commercial Bank of China and Bank of China fell, closing at 5.62 yuan and 5.43 yuan respectively.

The benchmark Shanghai index momentarily dropped below 4,000 points as investors began selling shares in anticipation of further tightening policies from the government.

Wu Xiaoling, vice governor of the People's Bank of China, said at an economic forum in Brussels that China's stock market was growing too fast and she expected it to develop more smoothly. She also said that an unstable market would damage the confidence of investors while discussing the market plunge on Wednesday.

Huiyang Investment said investors should be prudent with their investments while the market was restructuring.

An analyst with HK Macau Information said that he expected to see the market remain in a certain range and did not anticipate any further tightening policies in the immediate future.

(Xinhua News Agency June 1, 2007)