China stocks fall again on Tuesday

Chinese shares dropped again on Tuesday following Monday's collapse and regulators' promise of support for the market.

The benchmark Shanghai Composite Index shrank 1.68 percent to close at 3,663 points. The smaller Shenzhen Component Index fell 1.41 percent to close at 12,316.78 points.

The ChiNext Index, tracking China's Nasdaq-style board of growth enterprises, lost 3.78 percent to end at 2,581.96 points.

Despite the overall slump, the financial sector rose the most by 2.5 percent. The textile machinery sector dropped the most by 6.30 percent.

The central bank said on Tuesday it will maintain prudent monetary policy in the second half of this year.

The fall came after Monday's dramatic slump. On Monday, the Shanghai index lost 8.48 percent to close at 3,725.56 points, the sharpest daily drop since Feb. 27, 2007. Shenzhen fell 7.59 percent to close at 12,493.05 points.

China Securities Finance Corporation Ltd. (CSF) said Monday night it would continue to buy stocks to stabilize the market.

Zhang Xiaojun, spokesperson with the China Securities Regulatory Commission (CSRC), dispelled rumors that the national margin trading service provider has backed off from stabilizing the stock market.

CSRC is investigating huge sell-offs by some individuals and will punish any malicious short selling, Zhang said.

The sell-off was primarily driven by concerns that Beijing may remove its stabilization fund prematurely, while investors' confidence is still feeble, said a Nomura research note.

"We reiterate our stance that market consolidation may continue until the interim results season in mid-August, upon more positive micro level and macro level data points," it said.

The CSRC reassured investors that there would be no exit of the stabilization fund in the near term, investors can take advantage of this likely second bottom, after the first on July 7, to buy stocks with structurally sound fundamentals, it said.

After the massive sell-off since mid-June, the Chinese government has unveiled a slew of measures to prop up the market, including reducing the number of new shares to avoid a shares glut, a police crackdown on short-selling and a six-month ban on big shareholders selling stocks.

Before the market took a downturn on June 12, the Shanghai composite had risen by 152 percent since July 2014 and nearly 60 percent since the beginning of the year, galloping far ahead of economic fundamentals during the period.