SHANGHAI (July 2): China stocks are on pace to post their biggest one-day drop in more than three months on Friday, on concerns over slowing economic growth and tighter credit conditions.
Hong Kong stocks also fell, led by technology shares, amid broader weakness in Asia.
"Increased tightening fears out of China combined with greater uncertainly around the impact of the delta variant may have steered confidence sharply lower amongst Asia investors," State Street Global Markets said in a statement.
The CSI300 index fell 2.4% to 5,105.72 points at the end of the morning session, while the Shanghai Composite Index lost 1.6% at 3,532.23 points. Both indexes are poised to fall the most since March 19 barring a sharp afternoon rebound.
In Hong Kong, the Hang Seng index dropped 1.6% to 28,365.36 points and the Hong Kong China Enterprises Index tumbled 2.1% to 10,441.09.
"The market is searching for clearer signs before turning more bullish, given macro growth hiccup and earnings recovery uncertainties ahead of upcoming results season," Morgan Stanley said in a note.
The brokerage lowered its forecast for China's second-quarter GDP due to broad-based macro weakness seen in April-June and as both manufacturing and non-manufacturing PMIs further dropped in June.
In China, aerospace defence and food & beverage fell more than 3%.
Hong Kong's Hang Seng Tech Index, which tracks some of China's biggest technology giants, dropped 3%.
The declines in China and Hong Kong were broad based, with property stocks faltering.
"Onshore and offshore capital markets will remain volatile amid tight credit conditions for developers and weak investor sentiment," Celine Yang, a Moody's Vice President and Senior Analyst, said in a statement on Friday.
Guo Xiaolin, fund manager at asset manager Boshi, advised investors not to be affected too much by short-term volatility. In the new energy vehicle sector, "if short-term mood swings knocked down share prices, it could be a good buying opportunity," Guo added.