SHANGHAI: China shares sank on Monday as weak profits for industrial and consumer firms added to concerns over the slowing economy, highlighting growing investor scepticism over the effectiveness of Beijing's attempts to stabilize its stock markets. The blue-chip CSI300 index closed 3.0 per cent lower at 3,076.89 points, while the Shanghai Composite Index broke below the 2,600-point level to end down 2.2 per cent at 2,542.10. "A-shares are being led by corporate earnings, and we expect third-quarter earnings growth to show a bigger slide than mid-year reports, with the main board showing an even clearer decline," analysts at Huatai Securities said in a note, adding that they see little room for a rebound in the near term. Both indexes are on track for their worst monthly performances since January 2016, with the Shanghai Composite down 9.9 per cent and the CSI300 down 10.5 per cent. "Authorities have been announcing supportive policies, it may take some time for those to be implemented," said an analyst at a domestic brokerage in southern China.

"Profit growth is slowing and investors are concerned about the outlook." He said that regional market weakness and concern about the yuan's exchange rate also weighed on confidence. Profit growth at China's industrial firms slowed for a fifth straight month in September as sales of raw materials and manufactured goods further ebbed, data showed on Saturday. But consumer firms led the declines on Monday, with a sub-index of the CSI tracking consumer firms plunging 8.63 per cent. The financial sector sub-index fell 2.6 per cent, the real estate index lost 2.38 per cent and the healthcare sub-index slid 2.63 per cent. The smaller Shenzhen index ended down 2.02 per cent and the start-up board ChiNext Composite index finished 1 per cent weaker. Distiller Kweichow Moutai, the country's most famous producer of fiery liquor baijiu, fuelled the broader consumer slump, falling by the daily limit of 10 per cent after it reported sharply slower profit growth in the third quarter. Among other distillers, Wuliangye Yibin also fell by the 10 per cent limit, while Luzhou Laojiao ended down 7.2 per cent. Around the region, MSCI's Asia ex-Japan stock index firmed 0.2 per cent while Japan's Nikkei index ended down 0.2 per cent. China's securities regulator said on Monday that state-backed institutions have increased share purchases, describing reports that they were liquidating holdings as a "distortion of the facts". "The fact is that relevant institutions have not reduced, but rather increased share holdings," the China Securities Regulatory Commission (CSRC) said in a statement. Two funds that China set up to boost battered shares during a 2015 market crash reported on Wednesday that they had massive redemptions in the third quarter, and had no holdings in shares and bonds as of Sept.

30. Chinese government bond futures rose as equity markets fell.

The 10-year Treasury futures for December delivery, the most traded contract, advanced 0.2 per cent to 95.780. The yield on 10-year Chinese government bonds was at 3.556 per cent on Monday afternoon, according to Refinitiv data, down 9.7 basis points since the end of September. China's yuan fell slightly against a firmer US dollar, with traders continuing to debate whether the central bank will allow the currency to fall through the sensitive 7-to-the-dollar level.

A breach of that mark could risk a spike in capital outflows and put further pressure on the economy and financial markets. Policy insiders have told Reuters that China is likely to use its currency reserves to defend 7 to guard against speculation and strong outflows. However, some analysts believe a drop through that level may be inevitable if the economy continues to weaken, the dollar remains firm and pressure from US trade tariffs intensifies. At 0734 GMT, the yuan was trading at 6.9554 per dollar, weaker than Friday's onshore close of 6.9948 per dollar.

(Reporting by Andrew Galbraith; Editing by Kim Coghill)