BEIJING -- Chinese shares dropped sharply on Monday, weighed down by lackluster factory activity data released over the weekend and an official investigation over insider trading.

The benchmark Shanghai Composite Index lost 1.7 percent to close at 3,325.09 points, while the smaller Shenzhen index shed 2.09 percent to close at 11,304.88 points.

Total turnover on the two bourses shrank to 744.1 billion yuan ($117.82) from 802.6 billion yuan on the previous trading day.

The drops came after the National Bureau of Statistics said on Sunday that China's manufacturing purchasing managers' index (PMI), a major advanced economic indicator, stayed at 49.8 in October, signalling contraction in factory activity and lingering pressure on the economy.

Companies in the oil refining, ship making and property sector led the declines. Two major oil giants, China Petroleum and Chemical Corporation and PetroChina Company Ltd., fell by 1.79 percent and 2.51 percent respectively.

The market was also impacted by the fall of high-profile hedge fund manager Xu Xiang. Xu, general manager of Shanghai-based Zexi Investment, is under investigation for suspected insider trading, police announced late Sunday.

Companies favored by Zexi tumbled, with many plunging by the 10-percent daily limit.

The ChiNext Index, which tracks China's NASDAQ-style board of growth enterprises, closed 1.87 percent lower at 2,432.04 points.