The mainland's major stock index fell more than 2 percent yesterday and turnover in Shanghai A shares shrank to its lowest level since December 2006 as concern about the slowing economy continued to drive investors from the market.

The Shanghai Composite Index ended down 2.14 percent at 2741.74 points, near its intra-day low of 2738.85.

Turnover in Shanghai A shares shrank to 37.4 billion yuan from Friday's 50.6 billion yuan.

Steel shares, which have been sliding since early last week because of concern that a slowing economy could dampen product prices, led the drop. Industry leader Baoshan Iron & Steel lost 4.92 percent to 7.54 yuan, after falling 7.79 percent last week.

Many investors believe authorities do not want the market to fall sharply during this month's Beijing Olympics.

But they worry that stocks could resume a downtrend after the Olympics because of the economic outlook and large supplies of fresh equity due to expiring lock-up periods.

In one positive signal, the asset management arm of Belgian financial services provider KBC Groep was told by the foreign exchange regulator yesterday that it was being given a $150 million quota to invest in China's capital markets under the Qualified Foreign Institutional Investor (QFII) scheme, a source with direct knowledge of the matter told Reuters.

Some fund managers think other such quotas could be awarded in coming days as part of official efforts to improve market sentiment during the Olympics. But the quotas do not necessarily mean any immediate campaign of aggressive buying of mainland stocks by foreign funds.

HK shares slide

Hong Kong shares slid 1.5 percent yesterday in thin turnover, with bleak jobs data from the US intensifying recession worries and higher oil prices expected to further erode company profits.

Resources stocks and related counters also fell on concern that a slowdown in the Chinese economy could curb its voracious appetite for commodities.

The Hang Seng Index closed down 1.5 percent at 22514.92.

Container and port operators slid on increasingly negative forecasts from analysts on global trade. The Baltic Dry Index, which gauges changes in the price of shipping commodities, has been on the decline for more than 3 weeks, giving up 11 percent since July 10.