China stocks fall as US slowdown fears grip global markets

China stocks fell on Friday, tracking weakness in global markets after softer-than-expected US factory activity data sparked fears of a downturn, while the Middle East conflict and China's fragile recovery also dented sentiment.

A measure of US manufacturing activity dropped to an eight-month low in July amid a slump in new orders, data showed on Thursday, sparking broad risk-off moves across markets even after signals from the Federal Reserve earlier this week that a rate cut could come as soon as September.

Tensions in the Middle East escalated, after the Israeli military said on Thursday that the head of Hamas' military wing, Mohammed Deif, was killed in an Israeli airstrike in Gaza last month, a day after the group's political leader Ismail Haniyeh was killed in Tehran.

Investors were also concerned about China's economic woes. Data earlier this week showed that manufacturing activity shrank sharply. China also reported weaker-than-expected second-quarter economic growth earlier this month.

"Global markets have experienced wild swings, with investors flocking to safe assets on expectations that the Federal Reserve may cut interest rates sharply, while concerns about an economic slowdown and investment returns from technology giants have led to uncertainty and defensive investment trends," said Zheng Yufei, an analyst at Guosen Securities (HK).

At the midday break, the Shanghai Composite index was down 0.45 per cent at 2,919.32.

China's blue-chip CSI300 index was down 0.66 per cent, with its financial sector sub-index lower by 0.7 per cent, the consumer staples sector up 0.21 per cent, the real estate index down 0.11 per cent and the healthcare sub-index up 1.6 per cent.

Chinese H-shares listed in Hong Kong fell 1.92 per cent to 5,969.42, while the Hang Seng Index was down 2.05 per cent at 16,950.59.

The smaller Shenzhen index was down 0.32 per cent, the start-up board ChiNext Composite index was weaker by 0.85 per cent and Shanghai's tech-focused STAR50 index was down 0.93 per cent​.

Around the region, MSCI's Asia ex-Japan stock index was weaker by 2.31 per cent, while Japan's Nikkei index was down 4.44 per cent.