Shanghai stocks closed down slightly Wednesday, following a volatile day of trading that saw them as much as 4.39 percent lower.

Early trading continued a three-day plunge amid fears the Chinese economy was not yet ready to wake up from last week's catastrophe. But by mid-day the market was up overall, with a peak gain of 0.88 percent.

China's benchmark Shanghai Composite Index went down 0.20 percent, or 6.45 points, to 3,160.17. It slumped as much as 4.66 percent and sat 0.88 percent higher during the day. The Shenzhen Composite Index, which tracks stocks on China's second exchange, dropped by 1.98 percent, or 33.83 points, to 1,673.95.

Stocks elsewhere in Asia also largely recovered from the past three days' decline. Hong Kong's Hang Seng slipped 0.3 percent to 21,124.32 while South Korea's Kospi edged up 0.2 percent to 1,917.07. Japan's benchmark Nikkei 225 index climbed 0.1 percent to 18,177.95. Australia's S&P/ASX 200 fell 0.1 percent to 5,092.70.

On Tuesday, the Chinese government announced that its Purchasing Managers' Index (PMI) of manufacturing activity measured 49.7 last month, its lowest for three years. Asian shares plunged following fears that weak manufacturing in China, the US and Europe may slow global growth.

International Monetary Fund chief Christine Lagarde warned about "disruption in one market in Asia" spilling over to the rest of the world. Speaking at a conference in Jakarta, Lagarde said the recent volatility was an example of how risks could rapidly spill over from one economy to the next.

China's stock market has been volatile in the past two months. The government has launched a rescue package, which includes the state-sponsored China Securities Finance Corp (CSF) buying shares. Investors are worried that the government may reduce its support.

According to the China Securities Journal, securities companies were transferring more funds to the CSF to help stabilize the market. The additional amount is estimated to be around 30 billion yuan or 4.7 billion dollars.

China's markets will be closed on Thursday and Friday to commemorate 70 years of Japan's defeat in World War II.

mg/sgb (Reuters, AFP)