Chinese shares plunged more than 6 percent to 14-month lows on Tuesday after oil prices dropped again, reviving concerns about global growth and prompting a sell-off in the world's equity markets.
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The benchmark Shanghai Composite Index ended down 6.4 percent after a late selling frenzy at 2749.79 points, its lowest close since Dec. 1, 2014.
The CSI300 index of the largest listed companies in Shanghai and Shenzhen dropped 6 percent to 2940.51, also its lowest since the beginning of December 2014.
After a rebound on Friday and early Monday, crude prices fell back below $30 a barrel, not far from last week's 12-year lows, ending a couple of days of gains for Wall Street stocks.
China's fickle stock markets have now slumped about 22 percent so far this year on concerns about the slowing economy and confusion over the central bank's foreign exchange policy.
Many investors have lost the stomach for the market after a wild ride since last summer, when shares crashed 40 percent. Beijing intervened to stem that rout and orchestrate a recovery of sorts, but anyone who mistook that for a bottom and bought in will have lost their shirt again in January.
"We've seen another stampede driven by panic," said Yang Hai, analyst at Kaiyuan Securities.
"There's no good news in sight，while investors are being affected by the global 'risk-off' mood."
The slump has triggered a lot of forced liquidation, he added.
Indeed, China's outstanding margin loans - money investors borrow to buy stocks - declined for 16 consecutive sessions to Jan. 22, the longest losing streak on record, with 209 billion yuan ($32 billion) worth of leveraged bets unwound during the period.
"Volume is getting very thin, as there are hardly any fresh inflows, and the process of deleveraging is continuing," said Chang Chengwei, analyst at brokerage Hengtai Futures.
Investors remain wary about further weakness in the yuan, too, despite assurances from Beijing that it has no intention of pushing it lower to gain a competitive advantage.
Chastened by the market's bearish reaction to an early January depreciation in the yuan, the People's Bank of China (PBOC) has since kept the yuan's daily midpoint fixing <CNY=SAEC> little changed.
Spot yuan was at 6.5796 on Tuesday, just a few pips from Monday's close, while offshore it weakened to 6.6194, a 0.6 percent discount to the onshore rate.
In a move that could help ease market strains, Japan and China, Asia's two largest economies, said on Tuesday they were working to create a new framework to discuss economic policy coordination, such as steps to stabilise the yuan, the Nikkei newspaper said on Tuesday.
China's central bank has jolted global financial markets twice in six months by allowing sharp, sudden slides in the currency, only to step in aggressively to stabilise it.
Chinese state media also weighed in on Tuesday to warn billionaire investor George Soros against betting on falls in the yuan or the Hong Kong dollar.
Soros, dubbed "the man who broke the Bank of England" when he made more than $1 billion from shorting sterling in 1992, has said he is betting against the S&P 500, commodity-producing countries and Asian currencies, though he has not specifically mentioned the yuan or Hong Kong dollar.
The central bank has also been making plenty of liquidity available to the banking system to avoid any cash squeeze ahead of long Lunar New Year celebrations beginning in early February. Traders said on Tuesday that the bank would inject 440 billion yuan into the money markets, the biggest daily injection in three years.
The decline in the yuan and concerns about the country's growth prospects have fuelled a flight of capital out of the world's second-largest economy which policymakers are struggling to contain.
January has already seen a slew of weak economic data, and on Tuesday the nation's top economic planner said rail freight, a barometer of industrial activity, fell 11.9 percent by volume last year.
Other stock markets in Asia were also down on Tuesday, with Japan's Nikkei dropping 2.4 percent and MSCI's broadest index of Asia-Pacific shares outside Japan down 1.5 percent, extending earlier losses after the late slide in China.
All eyes will be on a U.S. Federal Reserve meeting this week to see whether it acknowledges concerns over the faltering Chinese outlook and global market turmoil and whether that will delay any interest rate increases this year.
(Additional reporting by Nathaniel Taplin; Writing by Will Waterman; Editing by Shri Navaratnam and Kim Coghill)