China shares sink on jitters over financial crisis

The benchmark Shanghai Composite Index fell 5.2 percent, or 120.05 points, to 2,173.74. The Shenzhen Composite Index declined 3.8 percent to 590.92.

News that China's securities regulator plans to allow margin trading on a trial basis was overshadowed by concern over the effectiveness of the $700 billion plan, passed by the U.S. Congress last week, to buy distressed mortgages and securities backed by mortgages from banks and other institutions.

"There are too many uncertainties in the global economy, so investors remain cautious," said Zhang Gang, a strategist at Central China Securities in Shanghai.

In its latest attempt to pump up the market after nearly a yearlong correction, the China Securities Regulatory Commission announced Sunday that it will begin allowing margin trading and short-selling on a trial basis.

Initially, the plan will involve only selected stocks and a limited number of brokerages, the CSRC said in a statement on its Web site.

"No one is getting excited about this, because it's only a trial plan without any exact timing or other information," Zhang said.

Banks and other financial shares saw heavy declines Monday amid speculation the central bank may cut interest rates to stimulate the economy.

Shanghai Pudong Development Bank fell by the daily 10 percent limit to 14.06 yuan; Bank of China slipped 4.9 percent to 3.48 yuan and Industrial and Commercial Bank of China lost 6.4 percent to 4.07 yuan.

Shares of Ping An Insurance Co. rose even after it said Monday it will record a $2.3 billion loss on its stake in troubled European bank Fortis NV, in the biggest blow yet to a Chinese institution from the global credit crisis. Ping An's shares gained 0.4 percent to 33.40 yuan.