Bearish sentiment about the property market and the falling value of the yuan drove China's benchmark stock index to its biggest slump in five months on Tuesday.

The Shanghai Composite Index dropped by 2 percent to 2,034 at the close, extending a four-day retreat to 5.1 percent, while turnover expanded to 127.8 billion yuan ($21 billion) from 107.2 billion yuan on Monday.

Analysts said sentiment has continued to deteriorate on negative news from the real estate sector, which put heavy pressure on property shares. More than 20 property shares traded below book value on Tuesday. News reports have been circulating since the weekend that some banks will tighten loans for property projects until the end of March, fueling speculation that a weaker housing market will erode demand for everything from electric appliances to cars.

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Shares in nearly 80 companies hit the base limit in the Shanghai and Shenzhen bourses. Sectors including Internet technology, aviation and space, environmental protection and home appliances all saw big retreats. A gauge of property companies in the Shanghai index slid 2.1 percent to its lowest level since June 26. Poly Real Estate Group Co declined 1.5 percent, deepening Monday's 8.5 percent tumble.

Meanwhile, the renminbi has continued to see weaker closing levels. The USD/CNH, which indicates the value of the US dollar against the yuan when the latter is traded overseas, mainly in Hong Kong, has broken through the 6.10 mark.

The decline of China's tightly controlled currency prompted suggestions China's central bank might be trying to support exporters and help offset weakening domestic demand. That view came after an HSBC Holdings Plc survey showed Chinese manufacturing activity in February tumbled to a seven-month low. "We believe the central bank will accept more weakness in the coming days," said Credit Agricole CIB in a report.

Li Xiaoxuan, a strategist with Shenyin & Wanguo Securities, said: "The recent volatility of the yuan has brought more uncertainties to the market, especially when emerging markets are going through a currency crisis. The stock index may see more corrections in the short term."

The ChiNext index, which traces China's Nasdaq-style Growth Enterprises Board, slumped 4.4 percent to 1,472.69, paring its gain during the past year to 72 percent.

The China Securities Regulatory Commission may resume approvals of initial public offerings after a meeting of the National People's Congress in March, 21st Century Business Herald reported this week, citing unidentified people from securities companies.

Analysts said speculation over Growth Enterprises Board shares is drying up and investors have been draining capital as they prepare to subscribe to new shares issued in March.

The central bank singled out developers this month as one of three types of borrowers most at risk as the authorities seek to tame debt that the Chinese Academy of Social Sciences estimates at 215 percent of gross domestic product.

Data on Monday showed new home price growth in China's first-tier cities slowed in January after local governments implemented property measures to rein in escalating values and banks tightened lending.

Bloomberg contributed to this story.