SHANGHAI, April 28 (Reuters) - China stocks ended lower on Tuesday, easing off a new seven-year high, as a tumble in start-up board ChiNext soured investor sentiment despite strength in banking stocks.
ChiNext, which trade at nearly 100 times companies' earnings, slumped 3 percent, the biggest drop in nearly two weeks on growing concerns over the board's lofty valuations.
China's securities regulator posted a statement on its website on Tuesday reminding investors of market risks, and cautioned them against "blindly" buying stocks.
Banking stocks posted strong gains amid market talk of new policy tools by the central bank and speculation it might consider buying lenders' assets. Some analysts suggested that the People's Bank of China (PBOC) could offer more funds for state banks to buy local government bonds.
The central bank did not immediately respond to Reuters' request for comment, but traders said the market was betting on the speculation.
"Many policies had been deemed quite unlikely before, but they eventually materialised. Investors are betting that if such a policy becomes true, banks' asset quality would be greatly improved," Chen Zhizhong, analyst at China Merchants Securities (HK) Co Ltd said.
The CSI300 index of the largest listed companies in Shanghai and Shenzhen fell 1.4 percent, to 4,741.86, while the Shanghai Composite Index lost 1.1 percent, to 4,476.21 points.
Shares of PetroChina and Sinopec Corp , which surged on Monday due to merger speculations, softened after the two oil giants dismissed the rumour, saying they had never received any official information about such a restructuring.
PetroChina shares dropped 2.2 percent in Shanghai, also hit by a sharper-than-expected 82 percent fall in first-quarter profit. Sinopec shares rose 1.4 percent.
But investors continue to bet on possible mergers among other state-owned firms. China COSCO and Merchants Energy Shipping Co both jumped their maximum 10 percent on consolidation expectations. (Reporting by Samuel Shen and Kazunori Takada; Editing by Jacqueline Wong)