China Stock Rout Leads to Panic Selling

The Shanghai Composite Index headed for its steepest three-week decline since 1992 as government measures to shore up Chinese equities failed to stop margin traders from unwinding positions at a record pace.

The benchmark gauge sank 3.3 percent to 3,785.57 at the midday break, extending its drop from a June 12 peak to 27 percent. Chinese shares have erased more than $2.8 trillion of value in three weeks, marking an abrupt end to the longest bull market in the nation’s history. Just 70 of the 1,106 stocks in the Shanghai Composite posted gains on Friday, paced by PetroChina Co. amid speculation of buying by state-backed funds.

With the Shanghai gauge tumbling more than twice as fast as any other index worldwide, regulators have pledged to investigate market manipulation and unveiled measures to revive confidence among the nation’s 90 million individual investors. The steps have so far been overshadowed by concern that leveraged traders will keep liquidating bullish bets after equity valuations exceeded levels during the country’s stock-market bubble in 2007.