Amid signs higher United States interest rates and fears of a global trade war are having an impact on the world's second-largest economy, China's central bank hopes cutting the reserve requirement ratios (RRRs) by 1% from 15 October will lower financing costs and spur growth.
The smaller Shenzhen index was up 0.14 per cent and the start-up board ChiNext Composite index was 0.13 per cent weaker.
Zhang Gang, a Shanghai-based strategist with Central China Securities Co, said: "The reserve requirement cut was within expectations and far from sufficient to counter the negatives on all fronts during the China holiday". Spot yuan slid to its lowest official close against the dollar in seven weeks on expectations of more easing by China.
The Shanghai Composite index finished 3.7 per cent lower, its worst day since June 19.
Washington and Beijing have imposed punitive tariffs of up to 25 percent on billions of dollars of each other's goods in an escalating fight over USA complaints China steals or pressures companies to hand over technology. At present, the interest rate on China's benchmark bond is about 60 basis points higher than on the US one. American officials worry they might erode USA industrial leadership.
The PBOC said on Sunday it will cut the RRR for RMB deposits by one percentage point starting from October 15.
The yuan was also down, as expectations of more easing measures by China, plus surging US bond yields, exert downward pressure on the Chinese currency. "Cutting RRR at a time of relatively ample liquidity in the banking system is not likely to have much effect", wrote Zhao Jian, a finance professor of the University of Jinan.
PetroChina's Shanghai-traded shares have gained 14 per cent this year, beating an 18 per cent loss on the broader benchmark index. That compares with the 3.227 percent yield for US bonds.
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The yuan was also down, after the central bank set the reference rate at its weakest level against the U.S. dollar since May 11, 2017, and analysts expect the currency's weakening trend to continue.
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In currency markets, the dollar was 0.1 percent stronger against the yen at 113.83, while the euro was 0.08 percent weaker against the dollar at $1.1514.
The FTSE China A50 Index of large caps, which includes stocks that overseas investors are more likely to own, sank nearly 5 per cent in its biggest selloff since January 2016.
Oil prices fell more than 1 percent after the USA said it may grant waivers to sanctions against Iran's oil exports next month, and as Saudi Arabia was said to be replacing any potential shortfall from Iran. That prompted suggestions Beijing might weaken the currency to help exporters that face punitive USA tariffs of up to 25 percent.
The Dow Jones Industrial Average rose 39.73 points, or 0.15 percent, to 26,486.78.
USA gold futures settled down 1.41 percent at $1,188.60 an ounce.