SHANGHAI stocks plunged to the lowest level in more than six months as concern over the economy escalated after data suggested China's manufacturing activity contracted to a nine-month low in June.

The benchmark Shanghai Composite Index slumped 59.43 points, or 2.8 percent, to 2,084.02, its lowest close since December. Daily turnover was 68.2 billion yuan (US$11.2 billion).

HSBC's Flash China Purchasing Managers' Index, the earliest indicator of China's economic activity, fell in June to 48.3, down from the final figure of 49.2 in May, HSBC Holdings PLC announced today. A reading of 50 or higher generally indicates that activity is expanding.

"Manufacturing sectors are weighed down by deteriorating external demand, moderating domestic demand and rising destocking pressures," said Qu Hongbin, chief China economist at HSBC.

"China prefers to use reforms rather than stimulus to sustain growth, which can boost long-term growth prospects but these have a limited impact in the short-term," Qu said.

UBS Investment Research lowered its forecast for China's GDP growth for this year to 7.5 percent, down from an earlier prediction of 7.7 percent. It cited slower exports due to waning global demand and a strengthening yuan.

The market was also hit by a liquidity squeeze. The seven-day repurchase rate, a gauge of interbank funding costs, surged 292.90 basis points to a record high of 11 percent in Shanghai today.

"The money-market rate is expected to remain at a high level as the regulators want to curb credit growth and tighten control of off-balance sheet businesses," UBS said.

Gold producers tumbled among commodity stocks after US Federal Reserve Chairman Ben Bernanke said yesterday the Fed may moderate its aggressive bond-buying program this year and end it next year as he expects the economy to recover and unemployment to fall.

Zijin Mining Group Co, the nation's largest gold producer, fell 3.9 percent to 2.73 yuan. Zhongjin Gold Corp slid 5.1 percent to 10.32 yuan.