SHANGHAI, Jan 19 (Reuters) - China stocks collapsed in early trade on Monday, with financials hammered after regulators cracked down on credit products that have been blamed for fuelling excessive market speculation over the past three months.
Brokerage shares tumbled after the securities regulator punished industry heavyweights for illegal operations in their margin trading business while banks were hit after the banking regulator issued draft rules to tighten supervision of entrusted loans, a kind of shadow banking product.
"The entrusted loan regulation and margin trading penalties had combined impacts on market sentiment, adding to volatility and leading investors to turn negative," said Du Changchu, analyst at Northeast Securities in Shanghai.
"These two regulatory moves, in essence, hinder capital inflows to the market which is the most significant reason behind the recent rally."
The CSI300 index fell 3.8 percent to 3,496.22 points by 0158 GMT, while the Shanghai Composite Index lost 3.4 percent to 3,260.45 points. Both indices had fallen more 5 percent at the open.
China CSI300 stock index futures posted record intraday drops, with the contract for February down 4.8 percent.
Shares of CITIC Securities and Haitong Securities, China's top two brokerages, fell by their 10 percent daily limit, dragging their smaller rivals lower as well.
Bank shares also tumbled, with the sector sub-index falling 5.3 percent.
The Hang Seng Index dropped 0.3 percent to 24,037.67 points. The Hong Kong China Enterprises Index lost 1.8 percent to 11,856.26.
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Reporting by Kazunori Takada, Sue-Lin Wong, Shanghai newsroom; Editing by Jacqueline Wong