SHANGHAI — China stocks fell sharply on Monday morning as a government-triggered rebound petered out, with attention shifting back to weak fundamentals and lackluster economic data.
Hong Kong stocks also slumped, as Asian markets were generally softer after losses on Wall Street and worries over China, while investors also braced for a looming increase in US interest rates.
The CSI300 index fell 2.6 percent, to 4,069.73 points at the end of the morning session, while the Shanghai Composite Index lost 2.4 percent, to 3,971.53 points.
Hong Kong's benchmark Hang Seng index dropped 2.8 percent.
"A rapid, post-rout rebound in mainland 'A' shares has ended, and the market has entered a stage of fluctuations, with investor sentiment increasingly unsteady," fund manager Yang Delong at China Southern Asset Management wrote.
He added that with many companies set to release their first-half earnings soon, performance of stocks will diverge depending on their performance.
Investor sentiment was soured by official data released on Monday showing that profit at China's industrial firms dropped 0.3 percent in June from a year earlier, reversing a 0.6 percent rise in May.
This adds to pressure on an economy that is struggling to regain momentum, after data on Friday showed that China's factory sector contracted the most in 15 months in July as shrinking orders depressed output.
In an apparent effort to boost investor confidence and keep markets stable, China's securities regulator started probing major shareholders of eight listed companies, for allegedly selling shares in their companies illegally.
Stocks fell across the board, with energy shares and health care firms among the biggest decliners.
Small caps also fell. Shenzhen's start-up board ChinNext lost 1.4 percent.
Reflecting the pessimistic outlook, all stock index futures contracts in China stumbled more than 3 percent on Monday.
Hong Kong markets also lost ground.
The Hang Seng index dropped 2.8 percent, to 24,422.19 points while the Hong Kong China Enterprises Index lost 3.6 percent, to 11,257.15.
Hong Kong's growth board GEM slumped 4.4 percent.
Shares of GOME Electrical Appliances Holding Ltd slumped 12.4 percent, after the Chinese home appliance retailer agreed to buy retail assets from its controlling shareholder in a deal to be settled partly by the issue of new shares.
(Reporting by Samuel Shen and Pete Sweeney; Editing by Jacqueline Wong)