Japan's Nikkei-225 index dropped 1.1% after Monday's 2.1% decline. Taiwan's main index dropped 2.5%, and stocks in Australia were off 2.6%. India's main stock index ended 1.2% lower.
Shares in Shanghai were down about 0.5% in the morning session today. Other Asian markets were little changed.
Not long ago, China's stock market was rocketing. In October, the Shanghai composite index hit a record high of 6,092 points, but it fell nearly 50% in the next six months. After increasing complaints from investors, China's government cut a stock transaction tax in late April, a gesture that seemed to restore confidence and lead some to believe that the bear market was over.
But since mid-May, amid the country's struggles with the earthquake in Sichuan province and increasing inflation concerns at home and in Asian countries such as Vietnam, Chinese investors' sentiment has turned negative.
The central government's move to raise bank reserve ratios came after reports suggested growing inflationary pressure in the economy in recent months. China's inflation this year has been running at an annualized rate of more than 8%. Higher food prices have been the main culprit, but there are signs that prices of other goods are rising as energy and other commodity costs have surged.
"I feel very uneasy, painful and powerless," said Zong Jun, 27, an employee of a Shanghai investment company. He said the value of his stock portfolio fell 14% on Tuesday, to about $17,000 from a high of almost $29,000 less than a year ago.
Zong said government officials should take other measures to attack inflation, such as letting the Chinese currency appreciate faster, rather than continuing to tighten lending.
"Right now, even if the central bank lifts the reserve rate, there's still lots of capital in the market, and it won't really make a big change," Zong said. "I've decided to just wait and see how the market goes before doing anything."
Zhang Qi, an analyst at Haitong Securities Co. in Shanghai, said he was surprised by Tuesday's sharp drop. He and other analysts are expecting the government to report this week that the inflation rate declined slightly in May. What's more, Zhang said, there's been a decline recently in the nontradable shares that have flooded and weakened the market in prior months.
"The market is overreacting," Zhang said, noting that 99% of the 806 stocks on the Shanghai Stock Exchange fell Tuesday, with about 60% reaching the daily loss limit of 10%.
"It's almost as if confidence in the market has collapsed," he added. "Cries of discontent are rising all around in the market."
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don.lee@latimes.com
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Cao Jun of The Times' Shanghai bureau contributed to this report.
