Chinese share prices registered a dramatic 3.87 percent drop Thursday as investor confidence collapsed ahead of the wary market performance and caused panic selling, analysts said.

The decline on overseas markets also had a negative effect.

The benchmark Shanghai Composite Index, which covers both A and B shares, opened higher after the government announced stimulus plans, but dipped 85.05 points, or 3.87 percent, to 2,121.52 points in the afternoon session.

The Shenzhen Component Index on the smaller Shenzhen bourse dropped to 7,777.90 points, down 463.76 points, or 5.63 percent.

Total turnover was 198.52 billion yuan (US$29.07 billion), down from 209.05 billion yuan on Wednesday.

Losers led gainers by 841 to 34 in Shanghai and 719 to 36 in Shenzhen.

The weak performance of both the Wall Street and Hong Kong shares had cast a shadow over the mainland market, said analysts.

The financial sector, which led a market rebound Wednesday, failed to support the market in afternoon trading as it dipped 4.76 percent.

Shenzhen Development Bank, which almost fell by the 10-percent daily limit, ended up with an 8.91 percent drop to 13.8 yuan.

China Merchants Bank, which rose by 9.57 percent Wednesday, slipped4.36 percent to 14.27 yuan.

Machinery, automobiles, media and semiconductor sectors led the retreat, dropping 7.88 percent, 7.54 percent, 7.68 percent and 7.79 percent, respectively.

Non-ferrous metals also fell by 7.54 percent though the government announced a stimulus package for the industry Wednesday.

Chenzhou Mining, Corun New Energy, Tibet Mining, Advanced Technology and Materials, Western Metal Material, Sichuan Hongda and Xiamen Tungsten fell by the 10-percent daily limit.

Yongan Forestry bucked the trend, rising by the 10-percent daily limit. The forestry sector managed to close at no more than a 2 percent decline, as domestic media reported a government stimulus plan for forestry was under discussion.

China Eastern Airlines, one of the country's top three airlines, announced Thursday that its shareholders had passed a share placement plan which intended to raise 7 billion yuan from its parent company, China Eastern Group.

The company will issue 1.44 billion Shanghai-listed A shares at a price of 3.87 yuan per share, as well as 1.44 billion Hong Kong-listed H shares at 1.00 yuan each, according to the announcement.

The fund would reduce the company's asset liability ratio and improve its financial situation, said the company.

China Eastern Airlines shares were suspended Thursday.

Hong Kong shares dipped 0.85 percent to 12,894.94 points Thursday, while U.S. stocks fell Wednesday. The Dow Jones industrial average was down 80.05 points, or 1.09 percent, at 7,270.89. The Standard & Poor's 500 Index dropped 8.24 points, or 1.07 percent, to 764.90. The Nasdaq Composite Index dropped 16.40 points, or 1.14 percent, to 1,425.43.

(Xinhua News Agency February 26, 2009)