China's stocks capped their steepest two-week plunge since December 1996 as investors who use borrowed money to buy equities cut holdings and concern grew that valuations were excessive.

The Shanghai Composite Index sank 7.4 per cent on Friday, taking its decline from its June 12 high to 19 percent, on the cusp of a bear market. Technology, industrial and material companies led declines in the two-week period, with Neusoft, China Railway Construction and Hainan Mining tumbling more than 30 percent.

Strategists at BlackRock, Credit Suisse Group and Bank of America this month warned the nation's equities were in a bubble. Credit:AFP

Strategists at BlackRock, Credit Suisse Group and Bank of America this month warned the nation's equities were in a bubble. The median stock on mainland exchanges is valued at about 85 times earnings - higher than when the market peaked in October 2007 and compared with a multiple of 20 for the US.

"We suspect there will be will be some more forced sales in the coming few days happening in the market," Steve Yang, China equity strategist at UBS in Shanghai, said on Friday in a phone interview.