2nd LD-Writethru: China stocks plunge over 3 pct Thursday

Chinese shares closed sharply lower on Thursday after a two-day rally, with the benchmark Shanghai Composite Index down 3.46 percent to finish at 4,527.78 points.

The Shenzhen Component Index slipped 3.8 percent to close at 15,692.44 points.

Combined turnover for the two bourses came in 1.55 trillion yuan (249.7 billion U.S. dollars).

The ChiNext Index, tracking China's Nasdaq-style board of growth enterprises, dived 5.23 percent to end at 3,206.38 points.

Internet and software sectors were among the biggest losers. Yongyou Network Technology lost 7.66 percent to close at 51.49 yuan. Beijing Join-Cheer Software fell by the daily limit of 10 percent to 63.81 yuan.

Most media and entertainment firms also suffered. Huayi Brothers Media Corporation lost 8.76 percent to close at 44.05 yuan.

The plunge came after a brief rally that pushed the major Shanghai index near to 4,700 points on Wednesday.

Market volatility will continue as investors fear reduced policy stimuli and tighter liquidity, said Gao Xiang, an analyst with CITIC Securities.

China's economy has showed signs of stabilizing with house prices in more cities rising in May and an index on manufacturing activities recovering slightly.

Investors are worried that the government may ease pro-growth policies, while the pace of new stock listings may suck liquidity from the market, Gao said.

The China Securities Regulatory Commission, the top securities regulator, on Wednesday said IPO applications by 28 companies had passed its review.

However, Gao predicted that the bull run will continue, as the economy has not seen a solid improvement yet and market corrections will pave the way for a new round of rallying. Endi