Shanghai stocks close down over 6% on economy worries

Shanghai stocks closed down more than six percent on Thursday, slammed by worries over China's slowing economy and tight liquidity, dealers said.

The falls came ahead of a meeting of G20 finance ministers in commercial hub Shanghai starting on Friday, with China's slowing growth expected to loom over the high-level discussions.

The benchmark Shanghai Composite Index plunged 6.41 percent, or 187.65 points, to 2,741.25 on turnover of 271.8 billion yuan ($41.6 billion).

The Shenzhen Composite Index -- which tracks stocks on China's second exchange -- fared even worse, tumbling 7.34 percent, or 137.80 points, to 1,738.67 on turnover of 394.8 billion yuan.

"The economy hasn't shown signs of stabilisation and policies are still coming out one after another," Central China Securities analyst Zhang Gang told AFP.

China's economy grew 6.9 percent in 2015, its slowest pace in 25 years, and policymakers have been using both monetary and fiscal measures in an attempt to support growth.

Dealers warned tight liquidity was also hurting trading, and the central bank injected 340 billion yuan ($52 billion) into the money market on Thursday to help ease flows.

Adding to the negative feeling, the central bank stopped offering some banks lower reserve requirements in what appeared to be a tightening of monetary policy. The bank has denied that claim.

"Sentiment is being affected as liquidity conditions seem to be tighter recently," Northeast Securities analyst Shen Zhengyang told Bloomberg News.

Investors have been hoping for more announcements of reforms and government support for the economy at the meeting of China's National People's Congress, or legislature, from March 5, which could help stocks.

Still, analysts said the market has risen too quickly to maintain recent strong gains, which has seen the Shanghai benchmark jump more than 10 percent from its low in January.

"The (Shanghai) market failed to rebound above the key 3,000-point level after several attempts and went the other way," Zheshang Securities analyst Zhang Yanbing told AFP.

"If the rising momentum is lost, investors tend to take profits and leave."