The approvals were viewed by analysts as part of attempts to prop up the vulnerable market. The main index has lost 20 percent so far this year.

"The positive effect of approving new funds has abated. Recently approved stock funds are expected to bring about 80 billion yuan in total to the market. However, this fresh capital can be offset by selling pressure created by just one bank - China Merchants," said Zhang Gang, an analyst at Southwest Securities.

More than 2.5 billion of A-shares in China Merchants Bank Co Ltd will come out of lockup and will be available for trading on the Shanghai exchange from February 27. The lender lost 1.88 percent to 29.78 yuan.

A large share offer has also diverted funds from the secondary market, Zhang said. China Railway Construction Corp began selling to institutional investors today and will sell to retail investors tomorrow in an up to 2.45 billion A-share Shanghai initial public offering.

Shanghai Pudong Development Bank Co Ltd fell 2.45 percent further to 39.00 yuan, down 1.45 percent. The company recently confirmed plans to raise funds by issuing new shares.

PetroChina Co Ltd tumbled 5.27 percent to 21.91 yuan, after hitting a record low of 21.89.

Steelmakers were also hit by a big rise in iron ore costs. China's Baosteel Group, the country's top steel producer, said it has agreed to a 65-percent hike in iron ore prices with Brazilian miner Companhia Vale do Rio Doce.

Laiwu Steel Corp dropped 5.07 percent to 21.91 yuan, and Panzhihua New Steel & Vanadium Co Ltd shed 5.04 percent to 12.06 yuan.

However, Baoshan Iron & Steel Co Ltd edged up 0.05 yuan to 17.67, after it announced it will raise prices of key products in the second quarter.

The Shenzhen A-share Index was down 53.73 points or 3.69 percent at 1,401.02.