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The Chinese stock market starts a new week with a 5.3% drop

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HONG KONG (CNNMoney) – The Chinese stock market fell deeper into negative territory on Monday after a first week of the brutal year.

The Shanghai Composite index closed with a 5.3% drop, and the Shenzhen Composite finished 6.6% lower.

The turmoil in the Chinese markets had effects around the world: the Dow lost 1,079 points, or more than 6% during the week; This represents the worst start of the five-day year that has been recorded.

The chaotic operations in China worsened last week by a so-called “circuit breaker” mechanism introduced by the authorities in an effort to reduce the volatility that had characterized the country's stock market defeat during the summer.

However, regulators rejected the new measure, which halted operations for the rest of the day when the shares fell by more than 7% after just four days due to concerns that it was fueling losses in operations, instead of stopping them.

However, analysts say they expect the unstable start of the year for Chinese stocks to continue.

At the heart of the tumult is a series of falls in the value of the country's currency, the yuan.

In recent weeks, the central bank has tried to guide the yuan lower against the US dollar, a measure that many analysts have interpreted as an effort to help Chinese exporters and support weak economic growth.

However, the bank's approach has alarmed investors who have sold the currency aggressively, because they believe their declines will continue.

The chaotic operations in the yuan have weakened investor confidence in the Chinese authorities, and in their ability to handle the world's second largest economy smoothly while experiencing a shift from decades of double-digit growth.

The data from the weekend gave more evidence regarding the milder demand in China. Consumer prices rose by only 1.4% in 2015, their slowest pace in six years and well below the 3% government target, state news agency Xinhua reported.

Capital has been flowing out of China while investors seek greater returns elsewhere. And the country has been forced to dig deeper into its large foreign currency reserves in order to prevent the yuan from falling too fast.

HSBC currency strategists said in a research note published Sunday that they expect the yuan's volatility "to remain high as long as depreciation pressures are likely to remain strong."

. (tagsToTranslate) Stock market (t) Fall (t) China

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