The Shanghai Composite Index closed down 5.5 per cent on Friday in the wake of a fresh crackdown on brokers who China has deemed responsible for the bursting of the country's equity bubble this summer.

Three of China's biggest securities firms are under investigation as regulators probe what they call "rule violations" that may have led to the plunge in stock values in August.

Shares in Citic Securities Ltd. and Guosen Securities Ltd. fell Friday by the 10 per cent daily limit after both said they were being probed by regulators. A third brokerage, Haitong Securities Ltd., issued a similar announcement after trading in its shares was suspended Friday morning. None gave details.

Authorities have detained securities executives, an investment fund manager, government employees and a reporter for a business magazine following the collapse in prices that began in early June. The announcements that brokerages themselves were under investigation represented a further widening of the probes.

The investigations were seen by many as an attempt by the ruling Communist Party to deflect blame for the 30 per cent fall by the Shanghai index after state media encouraged the public to buy stocks.

There was little reaction to the drop in Chinese stocks on European markets. Most indexes were down slightly, but analysts said that was a reflection of falling commodity prices.

Trading in North America is projected to be light today after the U.S. Thanksgiving holiday.

Probes of China's biggest brokerages

Citic is China's biggest brokerage and part of Citic Group, the Cabinet's main holding company. Guosen and Haitong are among the country's 10 biggest securities firms.

In September, the police ministry announced Citic executives including its general manager, Cheng Boming, were suspected of insider trading and leaking sensitive information. The previous month, the official Xinhua News Agency said eight Citic employees and one current and one former employee of the market regulator were suspected of illegal stock trading.

A star Chinese fund manager, Xu Xiang, was detained Nov. 2 on suspicion of insider trading, according to Xinhua.

The market benchmark soared more than 150 per cent beginning late last year before hitting a peak June 12 and plunging.

The downturn triggered complaints politically favoured insiders profited at the expense of small investors. Beijing responded by barring large shareholders from selling and ordering executives to buy back any recently sold stock in their own companies.

Critics of the regime point to government's interference in the market and a lack of understanding that markets can fall sharply, just as easily as they rise.