Chinese shares tumbled 3.34 percent on Thursday amid renewed fears of policy uncertainty and corporate earnings decline.

The benchmark Shanghai Composite Index ended 3.34 percent down at 2078.98 points. The Shenzhen Component Index lost 2.68 percent to 6876.25 points.

China announced its August inflation rate cooled to a 14-month low of 4.9 percent, which was widely deemed as a trophy of the government's effective combat against inflation. The benchmark index edged up 0.23 percent on Wednesday to echo the positive news, which also stirred up anticipation the tight monetary policy would be loosened.

Central bank governor Zhou Xiaochuan told Bloomberg Newswire there was still a risk that inflation in the world's fastest-growing major economy might rebound, signaling that any loosening of the nation's monetary policy might be gradual.

"Inflation has indeed slowed over the past several months. But we can not relax as the rate may rebound." he said in Basel, Switzerland, while attending a Bank for International Settlements meeting.

Affected by Zhou's remarks, property and financial shares led the fall. China Vanke, the country's leading property developer, shed 6.25 percent to 5.55 yuan (80 U.S. cents). Poly Real Estate slumped 6.92 percent to 11.17 yuan.

Bank shares tumbled in general on worries about faltering loan demand. China Merchant's Bank lost 8.89 percent to 18.04 yuan. The Industrial and Commercial Bank of China slid 4.66 percent to 4.30 yuan.

Slowing exports growth last month deepened worries over economic fundamentals, analysts said.

"The index will test 2,000 (points mark) affected by weak heavyweights and amid worries over worsening corporate earnings." said an analyst with the Shenzhen-based Lianhe Securities.

The top-10 heavyweights dropped sharply on fears of corporate earnings decline. PetroChina, the most heavily-weighted stock on the Shanghai Composite Index, ended at 10.71 yuan, down 3.34 percent. Sinopec, Asia's biggest oil refiner by volume, retreated 4.29 percent to 8.70 yuan.

Medical shares bucked the trend buoyed by news an amended draft guideline of medical and health care system reform began to solicit public opinion.

Jilin Medicine rose 10.07 percent to 8.42 yuan and S&P Pharmaceutical Co., Ltd jumped 9.95 percent to 6.85 yuan.

Losers outnumbered gainers by 753-120 in Shanghai and 639-98 in Shenzhen.

(Xinhua News Agency September 11, 2008)