Chinese shares dropped 2.94 percent on Wednesday despite a massive rally on Wall Street overnight.

The benchmark Shanghai Composite Index lost 2.94 percent, or 52 points, to close at 1,719.81. The Shenzhen index dropped 1.57 percent, or 92.46 points, to close at 5,798.67 points.

The combined turnover shrank to 50.06 billion yuan (7.15 billion U.S. dollars), from the previous trading day's 56.57 billion yuan. Losers outnumbered gainers by 734 to 78 in Shanghai and 556 to 123 in Shenzhen.

Wall Street overnight posted its second biggest rise ever, with the Standard & Poor's 500 index soaring 10.8 percent. Following the rise, the benchmark Shanghai Composite Index opened at 1,786.20 points, up 14.38 points or 0.81 percent on Wednesday.

But the financial sector, which led a rebound on the previous trading day, fell dramatically on news that the government postponed the start of margin trading and short selling amid fears of market fluctuations.

Securities firms led the fall: Guoyuan Securities dropped 8.98 percent to 12.16 yuan; Hongyuan Securities lost 8.44 percent to 12.69 yuan; Changjiang Securities, fell 6.29 percent to 12.07 yuan.

Heavyweights also dropped. Air China lost 7.52 percent to 3.69 yuan. The country's leading carrier, recorded losses of 1.94 billion yuan in the third quarter as against profits of 2.187 billion yuan for the same period last year. Sinopec fell 6.58 percent to 6.82 yuan after a rebound of global oil prices, while PetroChina rose slightly by 1.08 percent to 10.27 yuan.

However, the downward trend of the energy sector continued. Almost 80 percent of coal companies dropped by more than 3 percent.

Hu Zuliu, general manager of Goldman Sachs Group (Asia) Ltd., said that although China was not at the center of the financial crisis, the government and companies ought to learn from it and deepen financial reform.

Fan Gang, a member of the Monetary Policy Committee of the central bank, said problems remained in the development of China's market economy and the government needed to continue improving its control of the capital market.

(Xinhua News Agency October 29, 2008)