China stocks plunge over 3 pct after reserve hike

SHANGHAI (Reuters) - China's main stock index tumbled more than 3 percent on Thursday, led by financial shares, as monetary tightening and a break of the market's technical support sparked waves of selling.

The Shanghai Composite Index .SSEC was down 3.46 percent at 5,107.753 points in the early afternoon, after standing 2.70 percent lower at midday. It dropped 2.81 percent on Wednesday, its biggest fall in nearly two months.

A 0.5 percentage point hike in bank reserve ratios announced after the close on Wednesday was smaller than some analysts had feared, but the central bank's decision to act during a stock market slide sent a negative signal because it suggested authorities were not reluctant to hurt the market.

Institutions dumped stocks with dual listings in China and Hong Kong after the average premium of China's A shares over Hong Kong-listed H shares .HSCAHPI soared to a record 108 percent on Wednesday as the Hong Kong market plummeted.

Many institutions see levels near 100 percent as a signal that Chinese stocks are seriously overvalued once again.

Thursday's drop by the index was technically bearish because it extended well below the 60-day moving average at 5,272, and also left the index below chart supports at the early December peak of 5,209 and the 50 percent retracement of its rebound from mid-December at 5,168.

Clean breaks -- at least one daily close -- below these levels would leave no major technical support above the mid-December low of 4,812, though traders think some buying interest would emerge around 5,000 points.

($1 = 7.25 yuan)

(Editing by Andrew Torchia)