YEREVAN, June 25. /ARKA/. Chinese shares tumbled deeper into bear market territory on Tuesday, dragging down other Asian bourses, as worries spread that a cash squeeze could threaten China's economic growth and take the shine off an emerging U.S. recovery.

Shanghai shares slumped more than 6 percent at one point to their lowest since early 2009, briefly pulling Hong Kong into the red, with losses accelerating for mid-sized banks as mainland inter-bank rates started climbing again.
"This is a market in capitulation, it's not worth trying to catch any technical rebound. We have seen this movie before, look at how much the market tanked in 2008," said Hong Hao, chief strategist at Bank of Communication International Securities.

The slide in the CSI300 .CSI300 index of the leading Shanghai and Shenzhen A-share listings pushed its relative strength index (RSI) to 13.7 - its most technically oversold level since the indicator was adopted in 2005.

By mid-afternoon, both the CSI300 and Shanghai Composite Index .SSEC had pared losses to 1 percent and Hong Kong's Hang Seng Index .HSI had clawed its way back into the black.

China's short-term cash rates soared last week after the People's Bank of China (PBOC) allowed money market funding to tighten to curb credit for China's lightly regulated and speculative "shadow banking" sector. The central bank's message to banks to manage and control lending better hit smaller banks hardest.

"The issue now is that these medium-sized banks' margins may be at risk, although that's exactly what the PBOC wants to see to stop the expansion of credit. However, the consequences this could have on (small and medium-sized businesses) is real and could have negative implications," said Chris Weston, chief market strategist at IG.

The broad-based slump in Chinese shares drove MSCI's broadest index of Asia-Pacific shares outside Japan .MIAPJ0000PUS down as much as 1.2 percent, extending Monday's 1.8 percent slide to hit an 11-month low. By 0630 GMT, it was off 0.2 percent.
The turmoil took its toll on Japanese equities, where sentiment had been boosted by a recently-resumed trend in yen weakness. The Nikkei stock average .N225 gave up early gains to slip 0.7 percent.

Australian shares .AXJO eased 0.3 percent and South Korean shares .KS11 fell 1 percent. –0--