China's shares continued to tumble Tuesday morning, after steep losses a day earlier spurred declines elsewhere in Asia and prompted questions about what Beijing's next rescue steps might be.
The Shanghai Composite Index opened down 4.2% at 3568.40. The smaller Shenzhen Composite shed 4.3% to 2066.70 and the small-cap ChiNext fell 4.4% to 2564.71.
In Hong Kong, the Hang Seng Index fell 0.8% and a gauge of Chinese firms listed in the city is down 1.4%.
Fresh worries about China's stocks, which had notched three straight weeks of gains through Friday, have added to the anxiety about disappointing earnings results overseas elsewhere in Asia. Japan's Nikkei Stock Average was down 1%, Australia's S&P ASX 200 fell 0.7% and South Korea's Kospi was down 0.9%.
On Monday, the Shanghai Composite Index fell 8.5%, marking its biggest one day drop in more than eight years. China's main index has all but wiped out gains from its recent trough on July 8, and remains down more than a quarter from its seven-year plus peak in mid-June.
The tumble calls into question the effectiveness of Beijing's recent efforts to prop up the market, despite a ream of measures to stem selling, from forcing big shareholders not to sell shares for six months to halting new public listings.
Late Monday, a spokesman for China's top securities regulator tried to allay some investor concerns, saying that the government will step up its purchases of stocks. Zhang Xiaojun, spokesman at the China Securities Regulatory Commission, said the a state-owned fund called China Securities Finance Corp., which has been buying up battered shares, didn't "exit" the market.
The comments appeared to address speculation the government could pull back support, a possible driver for some of Monday's losses. Mr. Zhang said the company will "increase its holdings" of stocks "at appropriate times" and will continue to fulfill its role in "stabilizing the market."
Mr. Zhang also pledged to root out any "malicious" stock sales by individuals that authorities think could wreak havoc on the market.
Investors will be looking for clues about what rescue measures come next from China's top leaders, currently gathering for their annual summer talks at the northern seaside town of Beidaihe.
There is a "lesson learned," wrote Tim Condon, strategist with ING, in a note Monday morning. "Sentiment manifestly remains fragile. We expect a show of force from the authorities today to ensure the market closes higher."
The amount of outstanding margin loans, while sharply lower than during the peak of the rally, also remains a concern. Monday's steepest falls were concentrated in sectors with a high amount of margin debt remaining, including big brokerages, insurers and banks, according to analysts. While the buying of shares with borrowed money helped fuel a yearlong rally, the unwinding of those positions also exacerbated the fall, as investors were forced to sell holdings to cover losses.
Global stock markets, while largely insulated from China's gyrations in recent weeks, fell after the sharp moves, with the Dow Jones Industrial Average hitting its lowest level in nearly six months. The Stoxx Europe 600 suffered its biggest one-day percent decline in a month.
The declines in Chinese stocks have highlighted concerns about slowing growth in the world's second-largest economy. Slumping demand from China, the world's biggest purchaser of many materials, has rippled through the commodities and foreign-exchange markets.
In early Asian trade, spot gold prices edged down 0.2% to $ 1,094 a troy ounce after climbing overnight. Gold has lost nearly 7% of its value in the past month amid expectations for tighter U.S. monetary policy. Other metals including silver and platinum also traded fractionally lower.
Crude oil futures continued falling to slide. Brent slipped 39 cents to $ 53.08, while the U.S. benchmark slumped to a new four-month low near $ 47 a barrel.
In currencies, the yen strengthened as the U.S. dollar slipped on patchy economic data, which would hurt Japanese exporters. The greenback was changing hands at ¥123.52 yen in Asian trading, down from ¥123.81 yen late Friday in New York.
Write to Chao Deng at Chao.Deng@wsj.com
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