The comments were widely interpreted as meaning that more and stricter state measures may be introduced to cool a burgeoning market that may be falsely inflated.

    The barometer Shanghai Composite Index, which tracks both yuan-denominated A shares and hard-currency B shares, tumbled 4.92 percent to 2,786.34 yesterday. The previous biggest daily drop happened on June 7, when the index plunged 5.33 percent.

    The stock market on China's mainland is developing into a "bubble" and investors are in danger of behaving irrationally, the Financial Times reported yesterday, quoting Cheng Siwei, vice chairman of the National People's Congress.

    It is the strongest public expression of concern from a senior state official.

    "There is a bubble going on," Cheng said. "Investors should be concerned about the risks.

    "But in a bull market, people will invest relatively irrationally. Investors think they can win ¡­ many will end up losing. But that is their risk and their choice."

    Only 30 percent of companies on the Shanghai Stock Exchange could be regarded as a good investment by international standards, Cheng said.

    The Shanghai Composite Index ballooned 130 percent last year as a buying spree was led by big and small players alike, including some retirees venturing blindly into the market for the first time. "It is expected that more corrections will come in the short term as some shares are overvalued," said She Minhua, a China Securities Co analyst.

    The bearish sentiments add to speculation that the government will step up efforts to maintain a steady ship by quelling an irrational flow of funds into the market.

    China's banking regulator has already acted. It recently ordered banks to make proper checks, and to stop lending to companies and individuals that use the money purely for stock investments.

    Some analysts said yesterday's Shanghai correction will have beneficial effects.

    "Such a short-term correction will not change the long-run bull sentiment," said Qiu Zhicheng, a Haitong Securities Co analyst. "It is wise to buy into some quality shares amid the correction if investors are seeking long-term returns, rather than short-term speculation."

    Steel, financial and petrochemical sectors all dropped yesterday.

    Huaxia Bank Co led the slip in the financial sector. The Beijing-based bank plunged 10 percent, or the daily trading cap, to 10.24 yuan.

    Shenzhen-based China Merchants Bank lost 7.1 percent to 17.15 yuan, and Shanghai Pudong Development Bank 5.1 percent to 24.99 yuan.

    Baoshan Iron and Steel Co, the country's biggest steel maker, dived 8.18 percent to 9.77 yuan, and Wuhan Iron and Steel fell to 8.37 yuan.

    New listings also add to pressure, as some investors take capital out of the market to buy debut stocks.

    (Source: Shanghai Daily)