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[HONG KONG] A plunge in Chinese stocks dragged Asian markets down on Friday after authorities launched a probe into several brokerages and profits at the country's industrial giants sank far more than expected.
With Shanghai slumping more than six per cent at one point, the sharp losses brought back painful memories of the panic-driven sell-off that struck China's equities markets in the summer, wiping trillions of dollars off valuations.
Shares crashed 40 per cent between a June 12 peak and mid-August on fears over China's painful growth slowdown and profit-taking following a 150 per cent surge over the previous year.
They have surged almost 25 per cent since that trough after authorities unveiled various measures to prevent further selling - including suspending new listings - and government-back funds bought vast quantities of equities.
However, this month regulators said they would resume initial public offerings, fanning fears cash would be diverted from established chips and soak up liquidity.
Selling intensified Friday after Beijing said industrial profits fell more than forecast in October, and reinforcing worries about the world's number two economy, a key driver of global expansion.
Meanwhile, the country's biggest brokerage Citic Securities said on Thursday it was being probed for suspected "rule violations" as officials crack down on financial firms in the wake of the summer sell-off.
And on Friday another giant, Guosen Securities, said it was being probed, while second-ranked Haitong Securities halted trading of its shares in Shanghai and Hong Kong.
"The biggest reason for such a sudden drop today is because of regulator's investigation of the top brokers. It has triggered a broader sell-off," Phillip Securities analyst Chen Xingyu told AFP.
"(The) investigation suggests the firms could be in some serious trouble," he said. But he added Friday's losses were "totally different from the routs in July and August".
Citic slumped by its 10 per cent daily limit in Shanghai and more than five percent in Hong Kong, while Shenzhen-listed Guosen also tumbled 10 per cent.
Shanghai's stock market ended the day 5.5 per cent lower, while Shenzhen's composite index, which tracks stocks on China's second exchange, slumped 6.1 per cent.
The sell-off reverberated around Asia, with Hong Kong down 1.8 per cent in late trade, while Sydney lost 0.2 per cent and Seoul shed 0.1 per cent. There were also big losses in Singapore, Taipei and Manila.
Japan's Nikkei ended in the red after the government said prices fell last month, while consumer spending also dropped, overshadowing news that unemployment was at a two-decade low.
Prime Minister Shinzo Abe will come under fresh pressure from the results as his programme of big spending and massive monetary easing - aimed at kick-starting growth and ending deflation - struggles to kick in.
The economy slipped into recession in July-September - for the second time since Abe took office in December 2012 - and there is growing speculation the Bank of Japan will ramp up its bond-buying, which effectively prints cash in a bid to boost lending.
Daiwa Institute of Research economist Satoshi Osanai said Japan's economy was "out of gear", with most of Abenomics' benefits limited to the country's boardrooms.
"That's why consumption is still weak, even though employment got better," Osanai said. "(Any) economic improvement remains at the corporate level and has not spread to other areas, such as the household sector." The shock across Asia pushed the yen higher as dealers looked for safer investment, despite the expected Japanese monetary easing. The Japanese unit pushed to a fresh seven-month high against the euro while a rally in the dollar versus the yen was also staunched.
The single currency continues to struggle ahead of an expected fresh stimulus push by the European Central Bank next week.
US markets were closed Thursday for the Thanksgiving holiday.