Benchmark index drops to three-week low; financial institutions, liquor companies lead market decline

China's stock market sank to a three-week low on Monday amid concerns that renewed initial public offerings would hit liquidity.

The market was also affected by concerns over tighter conditions in the interbank market and continued cooling in the property sector, which many investors fear will worsen the economic slowdown.

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The benchmark Shanghai Composite Index fell 1.05 percent to 2,005.18 points, with turnover at 53 billion yuan ($8.55 billion). Although transaction volume was up slightly from 51.6 billion yuan on the previous trading day, it was still a relatively low level.

Financial institutions including bank shares, along with liquor producers, led the market's fall.

"The concern about new IPOs draining capital is still hanging over the A-share market. Whether it has been fully priced in won't be known until we see the pace of new offerings. It is still unclear," said Zito Ji, a mutual fund analyst based in Shanghai.

His company has been cutting A-share equity allocations.

As of last Friday, 343 companies had posted draft IPO prospectuses on the China Securities Regulatory Commission's website.

China's leading distiller, Kweichow Moutai Co Ltd, dropped 4.63 percent. Rival Wuliangye Yibin Co Ltd slid 2.5 percent after media reports said the company cut the price of a key product.

Commercial bank shares, meanwhile, were buffeted by new restrictions on interbank borrowing. China Minsheng Banking Corp Ltd fell 1.39 percent. Industrial Bank Co slid 2.81 percent.