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By Bloomberg

Chinese stock trading slumped as the government battled to shore up a market that’s lost $3.5 trillion in value. The benchmark equity index swung between gains and losses.

The Shanghai Composite Index slipped 0.3 percent to 3,650.64 at 1:03 p.m., after gaining as much as 1.6 percent. Brokerages led declines for financial shares. Turnover in Shanghai has halved from the peak in June amid signs of waning interest from retail investors and margin traders with the number of new stock investors sliding to a record low and margin debt dropping to the lowest level in four months.

While the government assured markets this week it hasn’t withdrawn support for equities, the recent data suggest waning confidence among retail investors, who make up about 80 percent of the Chinese market. The benchmark index has fallen 11 percent over the past four days.

“Investors are becoming more cautious and unwilling to take on leverage,” said Yan Liu, a trader at Guosen Securities Co. in Shenzhen. “The rebound isn’t fundamentally driven and the national team is in play to lend support.”

The government has gone to extreme lengths to halt the rout, including allowing more than 1,400 companies to halt trading, banning major shareholders from selling stakes and arming a state-run financing vehicle with more than $480 billion to support the market. The securities regulator said Tuesday it’s investigating the stocks selloff on Monday that sent the Shanghai index to its biggest loss in eight years.

A total of 517 companies were still suspended from trading in mainland exchanges on Wednesday morning, or 18 percent of all listings, down from 521 at Tuesday’s close.

Brokerages Drop

The Hang Seng China Enterprises Index rose 0.1 percent in Hong Kong, while the Hang Seng Index was little changed. The CSI 300 Index dropped 0.4 percent.

A gauge of financial companies in the CSI 300 slid 1.5 percent for the biggest drop among 10 industry groups. Citic Securities Co. slumped 3.3 percent. Founder Securities Co. plunged 4.2 percent.

New stock investors totaled 391,500 in the week ended July 24, a 26 percent decline from the previous week, show data from the China Securities Depository and Clearing’s website. The number is the smallest since the government started releasing the figures in May, and compares with a high of 1.64 million in the week ended May 29.

200-Day MA

The outstanding balance of loans backed by share purchases fell by 31.9 billion yuan ($5.1 billion) to 887.5 billion yuan on the Shanghai Stock Exchange on Tuesday, according to bourse data. That was the lowest level since March 17.

HSBC China A-Share Focused Fund’s Yang Huey-yuan is avoiding brokerages and ChiNext companies, preferring consumer and home-appliance stocks. The fund manager bought A shares during Monday’s rout.

Shipping, rail and aerospace companies led gains for industrial shares. AVIC Aero-Engine Controls Co. surged 5.5 percent.

Investors are closely monitoring the 200-day moving average for the Shanghai Composite, which is currently at 3,540.48, as a drop below that level could signal deeper losses ahead.

“If the level is breached some technical investors might decide to sell, adding pressure to the market,” said Gerry Alfonso, a sales trader at Shenwan Hongyuan Group Co. in Shanghai. “It does matter if you believe in these indicators or not, as long as many investors do, like in the Chinese case, they are going to have an impact.”