Shanghai shares see-sawed in early trade Wednesday, after Beijing's move to cut interest rates and free up cash for banks failed to restore confidence in China's growth and arrest the crisis that has rattled global markets.
China's central bank reduced interest rates and slashed the amount of money banks need to hold in reserve on Tuesday -- its second such double move in two months -- in a bid to bolster its economy and end the worst stock market rout in almost two decades.
The cuts initially fuelled a rebound in global equities, with European shares surging after their heaviest losses since the 2008 financial crisis on Monday as panic about China gripped world markets.
But the optimism fizzled by the end of trading in the US, with Wall Street finishing in negative territory after strong early gains, as the spectre of a hard landing in the world's number two economy returned.
"A circuit-breaker is needed to dispel excessive pessimism and restore confidence," Frederic Neumanm, co-head of Asian economics research at HSBC in Hong Kong, told Bloomberg News.
"Further support measures in the coming weeks and months will be needed."
Jitters continued in Shanghai on Wednesday, with China's benchmark index opening 0.53 percent higher, then falling as much as 2.31 percent before returning to positive territory, all within the first 20 minutes.
By mid-morning, the benchmark Shanghai Composite Index was down 3.03 percent, or 89.87 points, to 2,875.10.
The Shenzhen Composite Index, which tracks stocks on China's second exchange, slid 3.64 percent, or 63.62 points, to 1,685.45.
Other Asian shares also wobbled, with Seoul and Sydney falling, Tokyo up after its worst two-day falls since 2011 and Hong Kong trading flat.
Zhang Yanbing, an analyst from Zheshang Securities, said the central bank's cuts had tamed the "panic sentiment" that had gripped Shanghai, but warned: "There will still be fluctuations as views towards the market's prospects are divided."
- 'Changed tack' -
Chinese shares have lost more than 40 percent of their value since a year-long, debt-fuelled rally collapsed in June, prompting Beijing to unleash unprecedented measures to support shares -- including using state-backed vehicles to buy up shares.
While the slump in Shanghai may have a limited impact on the broader economy, it reflects dissipating confidence among investors that the sky-high valuations of quoted companies are warranted.
Some analysts see Beijing's handling of the market slump as a further litmus test of the government's ability to guide the economy to a more market-oriented model after the shock devaluation of the yuan two weeks ago.
"With the government's efforts to prop up equity prices through direct purchases in tatters, policymakers have changed tack," Mark Williams, chief Asian economist at Capital Economics, told Bloomberg News.
"The move may halt the market slide, but we suspect the primary motivation is to shore up confidence in the state of the wider economy."
China's central bank on Tuesday warned that "economic growth rate remains under pressure", adding the cuts were meant in part to "support the real economy to continue to develop healthily".
The People's Bank of China cut its benchmark lending and deposit interest rates by 0.25 percentage points each and its reserve requirement ratio by 0.50 percentage points, a move which increases the amount of money banks can lend.
The bank has now cut interest rates five times since November in a bid to spur the slowing economy as concerns mount it may miss its seven percent growth target for the year.