The index lost 5.62 percent on Monday, posting its biggest drop since January, as property developers were hit by rumors that authorities might take fresh action to curb rises in real estate prices.
The official Shanghai Securities News reported on Tuesday that neither the central bank nor banking regulators had imposed fresh curbs on property lending, although the central bank's Shanghai branch had begun a survey of the city's property and mortgage lending.
But this clarification failed to improve sentiment, since investors are concerned about the impact on the property market of an economic slowdown which may occur later this year.
The biggest listed property developer, Vanke, slid 6.46 percent to 21.44 yuan after dropping its 10 percent daily limit on Monday.
Poly Real Estate Group lost 7.41 percent to 22.50 yuan after dropping 10 percent on Monday. It said its first-quarter net profit soared 230 percent, but this was partly because some of last year's sales were settled during the quarter, and investors are in any case looking toward the second half of this year.
Losing Shanghai stocks outnumbered gainers by 561 to 319 on Tuesday, and turnover in Shanghai A shares remained very small at 30.8 billion yuan ($4.4 billion) against Monday morning's 34.9 billion yuan.
After the index's drop below its early April low, analysts said a slide to about 3,000 points was quite possible in coming weeks.
"There's concern over the outlook of the whole property industry, and the index is tumbling in shrinking turnover, which suggests confidence has almost gone," said Chen Jinren, analyst at Huatai Securities.
Stock market liquidity will remain under pressure at least through Wednesday, when Zijin Mining takes retail subscriptions to its IPO, traders said. Also, March inflation data is due late this week and analysts think a modest interest rate hike in response is possible.