Market dip ends three-day rebound

Equities declined on Tuesday, ending a three-day rally that followed a massive correction over less than four weeks and indicating that the market remains fragile and prone to volatility.

The latest decline came ahead of the release of the country's official economic data for the second quarter on Wednesday. The consensus projection by economists for the second-quarter growth rate is 6.9 percent, lower than the first quarter's 7 percent.

The downtrend may increase selling pressure in the stock market in the short term. This will be coupled with the fact that investors might take profits after many stocks rebounded by more than 20 percent, analysts said.

The benchmark Shanghai Composite Index declined by 1.16 percent in volatile trading on Tuesday to close at 3,924.49 points. It failed to climb above the psychologically significant 4,000 level.

The decline was led by major financial, real estate and other large blue chip stocks that had rallied strongly in the previous trading sessions as government-backed funds substantially boosted their holdings to prevent a market rout.

The startup board ChiNext also appeared to be losing rebound momentum as it closed slightly up by 1.6 percent.

"We believe the most panicky period in Chinese equities this year is probably behind us," said Wendy Liu, an equity market analyst at Nomura Securities.

"But for the index to reach new highs, we need further consolidation through the mid-August interim reporting period for listed companies."

The market had begun to recover from a sell-off of more than 30 percent since mid-June. The dramatic fall prompted the government to take a slew of measures to stem the slide.

"Given the speed of market correction, it is likely that the majority of consumers have not yet dramatically changed their spending patterns," Chang Jian, an economist at Barclays Capital, wrote in a research note.

The People's Bank of China has committed itself to providing liquidity to stabilize the market, and the soft economic conditions will ensure that monetary easing continues, Chang added.

The government also continued its crackdown on suspected market manipulation. The Ministry of Public Security questioned suspects from a number of firms that allegedly manipulated the market through short selling during the recent turmoil, Chinese media reported on Tuesday.