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Chinese stocks slip again, deepening worries over Beijing’s handle on crisis

An investor walks past a screen showing stock downturn at a brokerage house in Nanjing, China, on Monday. (China Daily/Reuters)

China's stock slide showed no signs of easing Monday, steamrolling over attempts by Beijing regulators to stem a dive that has battered markets around the world. But investors in the U.S. and Europe didn't blink -- this time.

The Shanghai Composite dropped more than 5 percent, while U.S. stocks remained flat and European indexes fell only slightly.

The latest sell-off in China continues what has been an awful start to 2016. Shanghai last week dropped almost 10 percent in the first five trading days of the year, erasing 2015 gains and leaving global markets reeling.

The performance of China's stock market is not closely linked to the rest of its economy, but a year of market turmoil has called attention to the country's economic slowdown and raised worries about the government's game plan. And those concerns have spilled across the globe, weighing on U.S. markets.

Despite avoiding any major swings Monday, the Dow Jones industrial average and the Standard & Poors 500 index are both down nearly 6 percent so far in 2016, one of the worst starts to a trading year in history.

“We began 2016 thinking that Chinese policymaker had absorbed the lessons of the last year’s stock market intervention and currency panic,” wrote Arthur Kroeber, managing director of Gavekal Dragonomics in Beijing.

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“Obviously,” he added, “last week’s mayhem proved us wrong.”

The rout appeared to be linked to weak economic data and concerns about the currency, but was exacerbated by a ham-fisted attempt to regulate the market.

Trading was twice halted by circuit breakers designed to stop deep selloffs. It had the opposite effect — as the government was forced to admit.

Chinese regulators abandoned the circuit breaker on Friday and took steps to stabilize the market. Analysts said a short-lived recovery on Friday was likely due to group buying by state-linked investors, also known as the " National Team."

On Monday, China also let its currency, the yuan, strengthen for the second session in a row, a move that seemed to deepen questions about Beijing's policy plans. A weaker yuan has been the backbone of China’s export-driven economy.

Analysts said the sell-off showed problems that go well beyond "circuit breakers."

"The market keeps dropping because there's still lots of bubbles — the shanghai index grew from 2000 to 5000 in the summer without any major improvement to the economy — so we are still in the process of recovery from that bubble," said Andy Xie, an independent economist in Shanghai.

"There's a lot of talk about technical issues, but it's mostly because of the bubble. The circuit breaker mechanism has been suspended and yet the market keeps dropping, which tells you it's not really a technical problem."

That means that China's stock turmoil looks set to last a while, experts said.

"Short term intervention can hardly turn the market's downward trend," said Zhou Hao, an economist at Commerzbank AG in Singapore.

"Overall, the mood of the market is still quite weak."

Xu Yangjingjing, Liu Liu and Gu Jinglu reported from Beijing. Merle reported from New York.

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