China will suspend "circuit breakers", the top securities regulator said, after the trading curbs were again triggered Thursday when share prices tumbled more than seven percent, halting share trading early for the second time this week.
The mechanism went into force at the beginning of the year to reduce volatility on China's erratic bourses, which went into a tailspin in mid-2015, sending jitters through world markets, but the China Securities Regulatory Commission (CSRC) acknowledged it was not having the desired effect.
"After weighing advantages and disadvantages, currently the negative effect is bigger than the positive one," the agency said in a statement.
"Therefore, in order to maintain market stability, CSRC has decided to suspend the circuit breaker mechanism."
The Shanghai and Shenzhen stock exchanges both said in statements that the circuit breaker suspension would come into effect on Friday, implying trade would resume as normal, capping off a volatile week on China's markets.
The benchmark Shanghai Composite Index closed down 7.04 percent to 3,125.00 Thursday, while the Shenzhen Composite Index, which tracks stocks on China's second exchange, tumbled 8.24 percent to 1,958.09.
Each exchange was open for less than 15 minutes -- apparently the shortest trading day in the quarter-century history of China's modern stock market -- before trading curbs put an abrupt end to business as the central bank sold dollars to prop up its currency.
Analysts said Beijing's introduction of the "circuit breaker" this week had proved counter-productive, with investor fears of being unable to sell unwanted stocks outweighing any reassurance over market stability.
The falls came amid worries over slowing growth in the world's second-largest economy and biggest trader in goods, which have roiled investors worldwide, and with pressure on its currency from capital outflows.
On Thursday, authorities lowered the yuan's central rate against the US dollar by 0.51 percent to 6.5646, the lowest since March 2011.
It was the biggest drop since August when Beijing guided the unit down by nearly five percent in a week in a surprise devaluation.
China limits the yuan to rising or falling two percent on either side of the reference rate, set by the central People's Bank of China (PBoC).
Thursday was the eighth consecutive trading session the PBoC has lowered the rate, reviving concerns over the unit.
A lower currency should make Chinese exports cheaper on world markets -- a challenge for overseas competitors -- but at the cost of its imports becoming more expensive in yuan terms.
Authorities were allowing the yuan to "move more flexibly", Societe Generale's China economist Claire Huang told AFP.
"The market expectation now is for the yuan to depreciate due to the economic slowdown (in China)," she said.
- 'Easily panicked' -
The country's flagging economy is expected to have grown in 2015 at its weakest pace in more than two decades. Official data on fourth-quarter and annual growth is due to be released later in January.
"There have been a lot of concerns lately about the economy, with the data coming in rather soft," Gerry Alfonso, a trader at Shenwan Hongyuan Group in Shanghai, told Bloomberg News.
"The volatility in the FX market amplifies those macro concerns and that's clearly not a positive for the stock market."
The circuit breaker system is based on the CSI 300 index, which tracks the largest 300 stocks on the two exchanges and was triggered for the first time on Monday.
If the index falls by five percent, the markets are suspended for 15 minutes. But when trading resumed after the initial halt on Thursday it took only one minute for the seven percent threshold to be reached, prompting a shutdown for the rest of the day.
The halt came after Shanghai dived 6.86 percent on Monday before trading was suspended, after the release of weak manufacturing data heightened investor worries.
"The use of the circuit breaker is the main reason for the falls as investors panicked after seeing it being triggered on Monday," Phillip Securities analyst Chen Xingyu told AFP.
"The circuit breaker has cut off the market liquidity and investors are afraid they won't be able to sell. The market-selling pressure was originally not this heavy. China shouldn't have used a tool of a mature market when most of its investors are individual investors who panic easy."