The “circuit-breaker” rule, introduced to stem volatility, was triggered in the first 30 minutes of trading, making it China’s shortest ever trading day.
Investors are nervous after the central bank moved to weaken the yuan.
This indicates that Beijing is looking to boost exports, as China’s economy may be slowing more than expected.
The CSI 300 index, which triggers the trading halt, fell 7.2% to 3,284.74. The index is a collection of blue-chip stocks from Shanghai and Shenzhen, and first sparked a 15-minute trading halt after it fell 5%.
The mainland benchmark Shanghai Composite index also fell 7.3% to 3,115.89, while the tech-heavy Shenzhen Composite lost 8.3% before trading was stopped entirely for the day.
It was the shortest trading day in the 25-year history of China’s stock market.
After the trading halt, the China Securities Regulatory Commission announced that major shareholders could not sell more than 1% of a company’s shares within three months as of 9 January.
It comes as a previous six-month ban of stock sales by major shareholders is set to expire on Friday.
Recent moves by Beijing to depreciate the yuan have ignited fears that the world’s second-largest economy is slowing more than expected and could trigger another wave of competitive currency devaluation in the region.
Bernard Aw, market strategist at trading firm IG, said the negative sentiment was because of the perception that China may further weaken the yuan, igniting concerns over what that might mean for other economies.
China’s central bank set a weaker yuan guidance rate for the eighth day, pushing the offshore yuan to 6.5646 per US dollar – which is the lowest level since March 2011.
A weaker yuan makes the cost of exporting goods for Chinese companies cheaper, giving the slowing factory sector a boost.
After disappointing manufacturing data on Monday, the mainland benchmark index plunged 7%, triggering a global equities sell-off.
The negative sentiment spilled over the border to Hong Kong, where the Hang Seng index also lost 2.8% to 20,393.14 in afternoon trade.
Oil supply worries
Meanwhile, Brent crude prices hit new 11-year lows on oversupply concerns, also weighed on investors’ confidence.
Japan’s Nikkei 225 index finished down 2.3% to 17,767.34, while Australia’s S&P/ASX 200 index lost 2.2% to 5,010.30 as energy shares dragged down the market.
Shares of Woodside Petroleum closed down 5.1% as oil prices slid after data showed a surprising build-up of US gasoline stocks, adding to fear of a growing global glut.
Government data showing that Australia recorded its 20th monthly trade deficit in a row on falling commodity prices also dented confidence.
South Korea’s Kospi index ended lower by 1.1% to 1,904.33 points as geopolitical tensions rose after North Korea’s nuclear test on Wednesday.