The China Securities Regulatory Commission (CSRC) said Tuesday that it is looking  into the "concentrated sell-offs" that triggered a major market slide on Monday, as share prices continued to fall on Tuesday.

The CSRC said that the Monday drop, the steepest in eight years, was "abnormal" and said the investigation was made based on tip-offs and the stock exchanges' trading records, according to a post on the commission's official Weibo account after Tuesday's trading.

Following Monday's 8.48 percent fall, the benchmark Shanghai Composite Index on Tuesday shed another 1.68 percent, or 62.56 points, to close at 3,663.00 points. The index was down by over 5 percent to 3,537.36 points during morning trading.

The Shenzhen Component Index also fell 1.41 percent on Tuesday, or 176.27 points, to close at 12,316.78 points.

Analysts said that State investors may have increased their exposure in the stock markets, which could have led to the rebound in afternoon trading.

The CSRC's Tuesday statement followed an urgent message on Monday night, which said that it would continue to stabilize the markets and that the China Securities Finance Corporation, a firm designed to help provide financing to brokerages, will increase its holdings in the stock markets.

It also said Monday that it has not ruled out the possibility that some investors are "maliciously" engaging in short selling, and the commission will severely punish them.

Li Pumin, a spokesman for the National Development and Reform Commission, said at a press conference that the improving Chinese economy has laid the foundation for the sound development of the stock markets.

Concerns that the central bank may tighten monetary policy amid surging pork prices have also affected market sentiment.

But the People's Bank of China (PBOC), the central bank, said Tuesday that it would continue its prudent monetary policy in the second half of the year to guarantee a reasonable liquidity level in the market.

The retreat came after the markets had seen steady gains over the past three weeks, fueled by government measures early this month to arrest the market slide which began on June 12.

Little impact on economy

Several measures have been taken to curb the downward trend, including suspending new IPOs, barring major shareholders from selling shares within six months and a crackdown on "malicious" short selling.

The fresh losses on the A-share markets show that market sentiment remains fragile as many investors are still startled from the previous declines, analysts said.

Cai Junyi, chief analyst at Shanghai Securities, said that this is "the second round of wrestling" between State investors and short sellers. "The short sellers are very skillful and experienced, so State investors should be more prepared to face their activities," he told the Global Times on Tuesday.

Retail investors are divided on the prospects of the A-share markets. A 55-year-old investor surnamed Wang in East China's Anhui Province told the Global Times on Tuesday that she has been reducing her stock exposure because she believes that market volatility would continue for some time.

However, Hao Yan, a 30-year-old investor from Beijing, told the Global Times on Tuesday that he did not sell during the past few days and remains confident that the government will succeed in stabilizing the market.

UBS Investment Bank said Tuesday that the A-share markets may slide further despite government support, given that many A-share stocks are overvalued, news portal ifeng.com reported.

Though more volatility may be possible, it is unlikely that the Shanghai Composite Index would drop below 3,373 points as recorded on July 9, said Yu Pingkang, chief economist at Huatai Securities.

"I think it [3,373 points] is an alarming line for the government. If the index approaches the line, the government will take further actions to stabilize the markets," Yu said, adding that it would take at least a year before the government gradually withdraws its support.

China's GDP growth stood at 7 percent in the first half of the year in line with the government's annual target. Some people fear that the volatility in the stock markets may spill over to the real economy.

However, Yu said the turmoil in the stock markets has had "little impact" on the economy.