Chinese stocks tumbled the most since 2009 amid volatile trading that spurred the benchmark index’s biggest swings in five years and sent turnover to a record.

The Shanghai Composite Index (SHCOMP) slid 5.4 percent to 2,856.27 at the close, the most since August 2009, after earlier gaining as much as 2.4 percent. The nation’s four biggest lenders including Industrial & Commercial Bank of China Ltd. (601398) plunged more than 9 percent, while PetroChina Co., the biggest stock, slumped 8 percent. Lower-rated bonds fell and the yuan weakened to four-month lows after policy makers said riskier bonds can no longer be used as collateral for some short-term loans.

Volatility in stocks is increasing, with the Shanghai index swinging by more than 250 points, as investors assess the sustainability of a rally that has topped every other market worldwide during the past month and propelled share prices to the most expensive levels since 2011. The value of equities changing hands on mainland exchanges reached 1.24 trillion yuan ($200 billion), almost five times the one-year average.

“The policy change on bonds was the biggest drag on the market today as there’s a liquidity crunch in the market,” said Zhang Gang, a strategist at China Central Securities Co. in Shanghai. “Investors have been overly speculative and the irrational surge has resulted in a bigger slump. The rally has ended.”

The CSI 300 Index halted its record 12-day rally, falling 4.5 percent after surging as much as 4.2 percent. The Hang Seng China Enterprises Index slid 4.6 percent, the biggest loss in three years. The Hang Seng Index fell 2.3 percent.

‘Cashing Out’

The Shanghai index surged above the 3,000 level yesterday, sending valuations to 11.3 times 12-month projected earnings, the highest level since July 2011. The 14-day relative strength measure also reached 89, the highest since at least 1994. Readings above 70 indicate a price may be poised to fall. the Shanghai measure has rallied 35 percent this year, compared with a 3.5 percent drop for the MSCI Emerging MarketsIndex.

A gauge of financial stocks in the CSI 300 plunged 6.3 percent today, paring gains to 42 percent during a month-long rally. Ping An Bank plunged 10 percent. Ping An Insurance (Group) Co. slid 8.5 percent, trimming a rally over the past week to 29 percent. A measure of energy companies dropped 5.9 percent, with Yanzhou Coal Mining Co, plunging the daily limit of 10 percent and China Petroleum & Chemical Corp. (386) sliding 8.2 percent after valuations hit four-year highs last week.

“There are people cashing out, especially in energy stocks like the oil-related plays,” said Ryan Huang, a market strategist at IG Asia Pte Ltd inSingapore. “Speculators are entering and triggering volatility.”

Yields Jump

The nation’s clearing agency for exchanges has stopped accepting new applications for repurchase agreements that involve bonds rated below AAA or sold by issuers graded lower than AA, according to a statement yesterday. The move will help remove riskier debt from the repo market before China requires local government financing vehicles to clarify next month which bonds are backed by the state, according to Guotai Junan Securities Co.

The yield on Kashi Urban Construction Investment Group Co.’s 800 million yuan of debt due November 2019 climbed 75 basis points to 7.17 percent, the biggest jump since July, exchange data show. Kashi Urban Construction is an LGFV.

One-year interest-rate swaps, the fixed payment to receive the floating seven-day repurchase rate, jumped as much as 29 basis points to 3.67 percent, the highest since August. The yuan weakened after the slowest export growth in seven months fueled concerns about the outlook of the world’s second-largest economy. The currency dropped as much as 0.55 percent, the most on a closing basis since December 2008, according to China Foreign Exchange Trade System prices.

Margin Trading

While the Shanghai Composite’s 18 percent rally over the past month, the most among 93 global indexes tracked by Bloomberg, is reviving interest in mainland equities after a four-year rout, it’s also drawing out skeptics who say the gains are amplified by borrowed money and don’t reflect the nation’s economic fundamentals.

A local securities regulator in China expressed concerns over rapidly growing risks in margin trading and short-selling businesses at a meeting yesterday, the Securities Times reported, citing an unidentified person who participated in the meeting. Some brokerages use working capital on these businesses, which may result in liquidity risks once the market shifts direction, the Securities Times reported.

The balance of margin trading and short selling yesterday rose to 601.7 billion yuan ($97 billion) yesterday, compared with 580.5 billion yuan on Dec. 5, according to data published on the Shanghai stock exchange’s website.