HONG KONG (Reuters) - China shares suffered their worst daily loss in almost four years on Monday, taking Hong Kong markets lower, with financials hammered on fears that the central bank would keep money tight and economic growth could slow sharply.
Despite money market rates easing for a second-straight session on Monday, mainland investors remained jittery about monetary conditions and braced for disappointment when the People's Bank of China conducts a scheduled open market operation on Tuesday.
The CSI300 .CSI300 of the top Shanghai and Shenzhen listings plunged 6.2 percent. The Shanghai Composite Index .SSEC dived 5.2 percent as volumes spiked to the highest in about a month. Monday's losses were their worst since August 31, 2009.
The Hang Seng Index .HSI slid 2.2 percent to 19,814 points, closing below the 20,000-point mark for the first time since September 11. The China Enterprises Index .HSCE of the leading Chinese listings in Hong Kong tumbled 3.2 percent to its lowest since October 2011.
At $10 billion, Hong Kong turnover was off Friday's three-month high, but was still some 20 percent more than its average in the last 20 sessions. Short selling accounted for 13.6 percent of total turnover, versus the 8 percent historical average.
Late Monday morning, share-losses accelerated in rising volumes after the Chinese central bank described liquidity in the country's financial system as "reasonable", repeating what was said in a Sunday commentary in the official Xinhua news agency.
The commentary also said the latest spike in money market rates was a result of market distortions caused by widespread speculative trading and shadow financing. The central bank, in its quarterly report on Sunday, pledged to "fine tune" existing "prudent" monetary policy.
"I think the market is expecting 'fine-tuning' to mean a tightening of liquidity moving forward, especially after the way official media talked about shadow financing over the weekend," said Cao Xuefeng, Chengdu-based head of research at Huaxi Securities.
"People are quite jittery ahead of the first of two (PBOC) open-market operations for the week on Tuesday. In this market environment, it's tough to call a bottom, fears could spread about funding for companies," Cao added.
The weakness in the mainland markets also extended to the property and other growth-sensitive sectors. A Xinhua report that 30.9 billion yuan ($5.04 billion) of shares could become tradable further weighed on markets, a move that may potentially compete for already tight liquidity.
Among CSI300 component stocks, only four finished the day with gains. Poly Real Estate (600048.SS) and Southwest Securities (600369.SS) were among 15 CSI300 components that plunged by the maximum-allowed 10 percent.
Warren Buffett-backed Chinese automaker BYD (1211.HK) plunged 11 percent in Hong Kong after CLSA analysts repeated their sell call. They see its share price down 80 percent from Monday's close, believing its new F3 sedan has been launched too late.
Monday's plunge came despite the overnight repo rate, a key measure of funding costs in China's interbank market, falling by more than two percentage points to 6.64 percent on a weighted-average basis, its lowest since last Tuesday. It had peaked near 12 percent last Thursday.
Among the biggest losers were smaller banks seen as more reliant on short-term interbank funding. The Shanghai financial sub-index .SSEFN skidded 7.3 percent in its worst day since November 2008, during the financial crisis that started that year.
Shanghai-listed China Minsheng Bank (600016.SS) and Industrial Bank (601166.SS), along with Shenzhen-listed Ping An Bank (000001.SZ) all plunged by 10 percent. Minsheng's Hong Kong listing (1988.HK) skidded 8 percent in its worst day since October 2011.
Minsheng shares, some of the most popular in both markets earlier this year, are now down 40 percent from a peak in January. They are down 19.4 percent on the year, compared to the 22 percent slide for the H-share index.
Among the "Big Four" Chinese banks listed in Hong Kong, Agricultural Bank of China (AgBank) (1288.HK) and Industrial Bank of China (ICBC) (1398.HK) had the biggest percentage losses, 2.9 and 3 percent, respectively.
($1 = 6.1329 Chinese yuan)
Editing by Richard Borsuk