Shanghai stocks close near seven-month lows as banks, energy shares weigh

Shanghai shares ended at their lowest levels in nearly seven months on Tuesday, weighed down by banking and energy stocks, while investors assessed disappointing China manufacturing activity data for August.

China's manufacturing activity sank to a six-month low in August as factory gate prices tumbled and owners struggled for orders, an official survey showed, pressuring policymakers to press on with plans to direct more stimulus to households.

Meanwhile, as markets now firmly expect the US Federal Reserve to cut interest rates in September, this could give Beijing more leeway to manoeuvre its own monetary policy, according to some investors.

The focus will be on the US non-farm payrolls data, due on Friday, after Fed Chair Jerome Powell last month endorsed an imminent start to rate cuts in a nod to worries over the labour market.

At the close, the Shanghai Composite index was down 0.29 per cent at 2,802.98 points, its lowest closing level since Feb. 6, while the blue-chip CSI300 index was up 0.26 per cent.

Banks were among the top losers, with the sectoral index closing 1.76 per cent lower.

Four of China's five largest lenders reported a lower second-quarter profit after responding to a government nudge to lower lending rates in order to stimulate weak loan demand amid a slowing economy and a struggling property sector.

The energy sector was another major drag, dropping 2.42 per cent.

In contrast, the smaller Shenzhen index ended 1.06 per cent higher and the start-up board ChiNext Composite index was up 1.26 per cent.

At the close of trade, the Hang Seng index was down 40.48 points, or 0.23 per cent, at 17,651.49 points. The Hang Seng China Enterprises index fell 0.13 per cent to 6,203.55 points.

The sub-index of the Hang Seng tracking energy shares dipped 0.8 per cent, while the IT sector rose 0.48 per cent. The financial sector ended 1.08 per cent lower and the property sector dipped 0.39 per cent.