China stocks tumbled again on Wednesday, surrendering much of Tuesday's sharp gains, as investors took advantage of any rebound to reduce their leveraged positions.
The CSI300 index of the largest listed companies in Shanghai and Shenzhen fell 4.9 per cent, to 4,253.02, while the Shanghai Composite Index lost 5.2 per cent, to 4,053.70 points.
During the previous session, the market jumped following a raft of government measures aimed at stemming two weeks of panic selling.
Bank of America Merrill Lynch said in a report that the recent market slump, which was triggered by concerns over a government crackdown on leveraged trading activities, has dented investor confidence, making sharp rallies unlikely.
"We doubt that this (Tuesday's rebound) marks the end of the de-leveraging process in the stock market given that much of the leveraged positions are yet to unwind," the bank said.
"After this adverse experience, we expect many investors will be much more cautious before investing into the stock market, using leverage. The air had probably been let out of the balloon and we will be surprised to see a return of the unbridled enthusiasm of investors any time soon."
Stocks fell across the board, with transport and infrastructure stocks leading the decline.