Stocks close lower after central bank announces rate cuts

An investor walks past an electronic board showing stock information at a brokerage office in Fuyang city, Anhui province, Aug 26, 2015. [Photo/IC]

Stocks closed lower on Wednesday after swinging between gains and losses, as the rate cut sent mixed message to markets.

The benchmark Shanghai Composite Index slumped 1.3 percent to 2,927.29 after rising as much as 4.3 percent and falling 3.9 percent, extending its steepest five-day rout since 1996, while the Shenzhen Component Index fell 2.9 percent to 9,899.72.

China's central bank announced on Tuesday evening that it would lower the benchmark deposit and lending rates by 25 basis points, hoping to further ease companies' debt burdens and stem downward risks.

After the adjustment effective from Wednesday, the one-year benchmark lending rate would drop to a record low of 4.6 percent, and deposit rate to 1.75 percent, according to the People's Bank of China.

Banks and insurers outperform the benchmark on Wednesday, as China Merchants' Bank surged 9.4 percent and Beijing Bank 9 percent. China Pacific Insurance, Ping An Insurance and New China Life Insurance jumped more than 4 percent.

Along with the fifth rate cut since November, the central bank also cut the amount of money banks must hold, or the reserve requirement ratio, by 50 basis points for all financial institutions to keep a stable growth in credit.

The measure is to offset capital outflows, which have increased since the third quarter, according to economists.

Ma Jun, chief economist of the central bank's research bureau, said the cut in interest rates and the reserve ratio will help to stabilize expectations, but it doesn't change the "prudent" monetary policy.

The Shanghai gauge has nosedived 16.5 percent so far this week, extending last week's 12-percent plunge, as market concerned that the slowdown of the world's second-largest economy might deepen.

The Purchasing Managers Index, a main gauge of manufacturing activities, fell to 47.1 in August, marking its lowest level since March 2009, according to a preliminary reading of the Caixin PMI.

The rate cut will likely to "lift market sentiment from an extremely short-term oversold position", said Wendy Liu, equity analyst with Nomura, in a note on Wednesday, adding that the organization remains a year-end bullish view on the markets.

The CSI 300 Index closed at 3,025.69 on Wednesday, down 0.6 percent.

Chen Jia contributed to this story.