An investor monitors stock price movements at a brokerage firm in Dalian, Northeast China's Liaoning Province July 2, 2007. [newsphoto]

Chinese stocks fell more than two percent Wednesday on thin turnover amid concerns over further credit tightening and an increased supply of new shares.

The benchmark Shanghai Composite Index declined 2.14 percent to close at 3,816.16 points, after hitting an intraday high of 3,916.48.

Turnover in the Shanghai A-share market shrank to 72.26 billion yuan, the lowest in more than three months. That marked a significant drop from the daily record of 267.5 billion yuan reached on May 30.

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The drop came after the People's Bank of China said Tuesday it will keep tightening monetary policy to keep inflation in check and to prevent the economy from overheating.

So far this year, the central bank has raised interest rates twice and demanded banks to set aside more money as reserves five times. It is expected to announce two more interest rates hikes before the end of this year.

Adding to investors' worries, regulators are accelerating the approval of new initial public offerings to further cool down the market.

Bank of Nanjing and Bank of Ningbo said on Wednesday they would launch IPOs of domestic A-shares next week that is estimated to raise a combined US$1.8 billion.

China Shenhua Energy, the country's top coal producer, is also planning a domestic share sale, hoping to raise as much as US$6.3 billion.

Analysts expect further small fluctuations around the 3,900 level in the coming days as investors remain wary of future direction of the market's movement.

The low turnover showed that investors are still cautious and have not regained confidence, according to the analysts.

Losing shares far outnumbered gainers by 650 to 150 in the Shanghai A-share market.

Financial shares are weak. Pudong Development Bank was the biggest loser, tumbling 4.49 percent to end at 34.28 yuan per share, followed by the Industrial Bank which went down 4.29 percent to 33.47 yuan.

China Life decreased 2.86 percent to 40.82 yuan, while Bank of China shed 1.57 percent to 5.02 yuan.

Baotou Aluminium extended its recent rally, jumping 4.59 percent to 30.76 yuan after Aluminum Corp. of China Ltd. (Chalco) said on Tuesday it would buy the firm through a share swap.

But Chalco was among Wednesday's biggest losers, falling 7.35 percent to 22.18 yuan after a 3.73 percent increase on the previous session.

China's stock market would remain highly speculative and volatile, said the State Information Center in a report published Wednesday on China Securities Journal.

That was attributed to the fact that not many stocks are worth holding for a long term due to the poor track record of dividend payouts by listed firms.

"Investors can only seek to make profit from the quick sale and purchase of stocks," the center said.