SHANGHAI China stocks fell on Thursday morning after state media reported that 35 domestic brokerages have resumed short-selling business after a long hiatus.
The CSI300 index declined 1.0 percent to 3,204.16 points at the end of the morning session, while the Shanghai Composite Index lost 0.9 percent, to 2,982.48 points.
Many Chinese financial institutions voluntarily halted margin lending and stock shorting activities during China's mid-2015 stock market crash, in response to heavy pressure from Beijing.
While short selling was never made completely illegal, state investigations into "malicious short-selling" combined with restrictions on same-day shorting implemented in August had a chilling effect.
Analysts say that on resumption, the volume of the business, which allows investors to sell borrowed stocks and profit from price declines, is expected to be negligible. But its resumption could have a psychological impact on a market facing increasing selling pressure.
"The market has had a solid rebound over the past month, so the news could give some investors another reason to take profit," said Zhang Xiaochun, analyst at Guolian Securities Co.
"Increasing volatility is natural at this stage. We're still in a bear market, so I don't see big room on the upside."
She added that the stock market is still vulnerable to volatility in the currency market, as the yuan remains under pressure despite recent calm.
Stocks fell across with board, with energy and resources shares among the biggest decliners.
Index heavyweight PetroChina Co Ltd fell 1.4 percent in Shanghai and 3.9 percent in Hong Kong after saying profit fell 70 percent last year.
In Hong Kong, Dalian Wanda Commercial Properties shares jumped 1.6 percent after China's largest commercial property developer reported a 14.8 percent rise in 2015 profit.
The Hang Seng index dropped 1.2 percent, to 20,370.02 points.
The Hong Kong China Enterprises Index lost 1.6 percent, to 8,729.99.
China CSI300 stock index futures for April fell 0.9 percent, to 3,163, or 41.16 points below the current value of the underlying index.
The index measuring price differences between dual-listed companies in Shanghai and Hong Kong stood at 135.39.
A value above 100 indicates Shanghai shares are pricing at a premium to shares in the same company trading in Hong Kong, and vice versa.
The northbound quota for the Hong Kong-Shanghai Stock Connect, currently set at 13 billion yuan, saw balanced inflows and outflows.
Total volume of A shares traded in Shanghai was 13.20 billion shares, while Shenzhen volume was 14.98 billion shares.
Total trading volume of companies included in the HSI index was 0.7 billion shares.
(Reporting by Sam Shen and Pete Sweeney; Editing by Richard Borsuk)
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