Disappointing economic data aggravated investor concerns about downside risks to the economy and triggered a sharp decline in the capital market barometer on Friday.

The benchmark Shanghai Composite Index tumbled by 156.55 points, or 4.27 percent, to close at 3,507.74, almost exactly the same level when the market touched the bottom on July 8 at 3,507.19 which prompted massive government intervention to rescue the market.

The selling pressure was even heavier on the smaller Shenzhen bourse and the startup board, both of which suffered more than 5 percent loss on Friday. Textiles, automobiles and agriculture stocks led the decline.

The sell-off came after the release of the preliminary reading of the Caixin Purchasing Managers Index, a main gauge of manufacturing activities, which fell to 47.1 in August, the lowest level since March 2009. A figure above 50 indicates growth while a reading below that signals contraction.

"The weak PMI confirms that the economy is still not on a solid footing and looks set for a flat growth in the second half of the year," Chang Jian, a China economist at Barclays Bank said in a research note.

The panic selling in the Chinese market over the past two trading days also spread to international markets. The United States stock market saw its worst performance in 18 months on Thursday with the Dow plunging 358.04 points, or 2.1 percent, and the Nasdaq composite down by 141.56 points, or 2.8 percent.

"The reaction of markets around the world is understandable and contains a very audible sign of concern about the slowdown of the Chinese economy," said Kamel Mellahi, professor of emerging markets at the United Kingdom-based Warwick Business School. "There is still plenty of time for the economy to pick up in the second half of the year, but better figures can't come soon enough," he said.

On Friday, the China Securities Regulatory Commission said that it will continue to clamp down on illegal reduction of stock holdings by large shareholders of listed companies.

The regulator has till now investigated 52 cases and the largest amount of illegal stock holdings reduction involved 737.56 million yuan ($119.37 million), according to Zhang Xiaojun, a CSRC spokesman. A positive development that the CSRC announced on Friday is the further opening of the mainland securities market to financial institutions from Hong Kong and Macao.