Chinese shares closed down 0.19 percent at their lowest level in more than four years Tuesday as dealers were spooked by persistent worries over a domestic liquidity squeeze, dealers said.
The benchmark Shanghai Composite Index ended down 3.73 points at 1,959.51 on turnover of 104.7 billion yuan ($17.0 billion). The close was the lowest since January 16, 2009.
The index tumbled as much as 5.79 percent in afternoon trading -- following a 5.30 percent dive Monday -- before rebounding on bargain-hunting amid rumours state-backed funds had entered the market, analysts said.
"The impact of tight liquidity has been critical and it's very rare to see the market falling more than five percent two days in a row," Sinolink Securities analyst Tao Jinggang told AFP.
Investors have been sent running as cash has dried up and the interbank rate -- the interest banks charge to lend to each other -- jumped, raising fears they will cut back on loans, which would in turn drag on the economy.
The central People's Bank of China added to those worries on Monday when it ruled out providing any fresh money to bolster markets and ordered banks to get their own houses in order.
Meanwhile, the mouthpiece of the ruling Communist Party, the People's Daily, on Tuesday warned the government would not play "wet nurse" to investors by boosting the market.
"The securities regulatory commission is not the stock market's 'wet nurse' nor is the central bank," the newspaper said in a commentary.
"So-called market-saving and market-boosting acts will not help the stock market, rather they will harm the market," it said, adding such moves would hurt efforts to improve the nation's capital markets.
Brokerages were hardest hit on Tuesday, with China Everbright Securities losing 4.23 percent to 9.74 yuan and Industrial Securities falling 3.09 percent to 9.09 yuan.
Cement producers also fell, with Zhejiang Jianfeng Group dropping 4.07 percent to 8.72 yuan and Shaanxi Qinling Cement falling 2.57 percent to 4.17 yuan.
But banking shares rebounded after earlier losses. Industrial & Commercial Bank of China rose 1.54 percent to 3.96 yuan and Agricultural Bank of China climbed 1.21 percent to 2.51 yuan.