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China Shares Slump 3% on Tightening Fears

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China markets resumed their decline on Thursday, after a one-day recovery on Wednesday, dampened by fresh worries about monetary tightening and expansion of property sector curbs.

The Shanghai Composite Index declined by up to 3.6 percent in early afternoon trade. and ended the day down 3 percent.

Mainland investors were worried that the central bank was draining funds more aggressively than expected, said Chen Shaodan, analyst at New Times Securities, which she said had sparked worries that a sustained drain on liquidity is in the offing, depressing stock prices.

(Read More: New Loans at Major Chinese Banks Surge 50 Percent)

The People's Bank of China let a net 910 billion yuan ($145.89 billion) drain from the interbank market this week.

In addition, the central bank this week returned to using longer-term forward repos to drain funds, instead of reverse repos which inject funds, for the first time since June.

But a money market dealer in China's interbank market said that the PBOC operations were mostly intended to offset the record-high injection the central bank made prior to the Chinese Spring Festival holiday, which saw markets close for a week.

(Read More: Rush for Dollar Bonds Fuels China Housing Fears)

In Hong Kong, the blue chip Hang Seng Index fell 1.8 percent to 22,897.63 by the midday break.

The property sector took a hit after China's cabinet on Wednesday restated its intention to extend a pilot property tax program to more cities and urged local authorities again to put price control targets on new homes.

(Read More: Property Poses Biggest Risk to Hong Kong Economy)

In Hong Kong, Cheung Kong (Holdings) fell 3 percent, while Sun Hung Kai Properties dropped 2.6 percent. New World Development slid 3.5 percent.

"I don't think it's going to have a drastic fundamental change at the moment," said Linus Yip, strategist at First Shanghai Securities in Hong Kong, adding that the impact to Chinese real estate plays was limited as the sector had already pulled back since January amid ongoing concerns on property curbs.

China Overseas Land, which has dropped 5.9 percent so far this year, gained 0.2 percent on Thursday, while China Resources Land rose 0.2 percent.

Belle International Holdings, China's top footwear retailer, dropped as much as 16 percent in the morning session after it said its 2012 profit would come in at the lower end of expectations, just marginally higher than in 2011. Shares in the company closed at a record high on Wednesday.

"The reason for the drop was due to overestimation of sales results by analysts," said Patrick Yiu, a director at CASH Asset Management.

(Read More: Priced Out of Hong Kong Homes? Try Hotel Living)

"Most of the analysts were still quite bullish on the China retail sector."

Macau gambling stocks remained weak for the third consecutive day as analysts said short-term consolidation may last one to two months as the sector pulls back from recent gains.

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