June 4 (Bloomberg) -- China's benchmark stock index plunged 7.7 percent after the government's main business newspaper signaled officials won't try to halt a slump that's erased more than $350 billion of market value in four days.

The CSI 300 Index dropped 292.52 to 3511.43, the biggest points slide on record. The measure, which doubled in the past six months, has tumbled 16 percent from its May 29 peak after the government tripled the tax on share trades to 0.3 percent.

The speed at which stock prices soared was ``extremely unusual'' and highlighted ``structural bubbles'' in the market, the state-owned China Securities Journal wrote in an editorial.

More than half of the stocks included in the CSI 300 fell by the 10 percent daily limit, including Huaneng Power International Inc., the nation's largest electricity producer, and Air China Ltd., the biggest international carrier. Declines were limited to mainland markets; Hong Kong's Hang Seng Index advanced, as did Japan's Nikkei 225 Stock Average.

``There's panic selling'' in China, said Yan Ji, who helps oversee $517 million at HSBC Jintrust Fund Management Co. in Shanghai. ``Investors are convinced the government won't do anything to support the market.''

China Vanke Co. led declines among property developers after a newspaper report said the government will soon announce measures to cool the real estate market, including increasing the supply of land.

Even after the recent declines, the CSI 300, which tracks yuan-denominated A shares listed on China's two exchanges, is up 72 percent this year.

Today's drop in Chinese shares had little effect on the rest of the region, with the Hang Seng Index climbing 0.6 percent and the Nikkei 225 adding 0.1 percent. The Morgan Stanley Capital International Asia-Pacific Index rose 0.7 percent to 152.32 as of 6:18 p.m. in Tokyo.

Limited Investment

``China's a secluded market, so its plunge will have limited regional impact,'' said Liu Juming, who helps manage $1.7 billion at IBT Securities Co. in Taipei.

The government limits foreign investment in local-currency securities to $10 billion, a quota that China said last month it plans to triple. Local banks are allowed to invest a combined total of $14.9 billion overseas, half of which can be used to buy stocks listed on approved exchanges.

A 9.2 percent decline on the CSI 300 on Feb. 27 sparked a global sell-off that wiped out about $3.3 trillion of stock market value. The index's fall, triggered by a crackdown on investments with borrowed money, was its biggest decline since the measure was introduced in April 2005.

`Unsustainable'

Volatile price moves within each trading day reflected the ``weak sentiment'' among investors and the fact that the rally was ``unsustainable,'' China Securities Journal, which is affiliated to Xinhua News Agency, said. The CSI 300 today gained as much as 0.5 percent and fell as much as 7.9 percent.

China's increase in stamp duty is a ``proper forward- looking adjustment'' to avoid greater ``systemic risks'' in the market and to ensure its healthy development, the paper said.

China may ditch a 20 percent tax on interest on bank deposits to try to deter people from switching money into shares.

``Scrapping the interest tax may help increase bank saving and shift money back from the stock market,'' said Ni Hongri, a tax researcher at the State Council Development and Research Center in Beijing. ``Stamp-duty increases will remain the government's first option, while interest-tax reform may be an option that follows.''

Low-Cost Housing

Inflation was 3 percent in April, compared with a benchmark one-year deposit rate of 3.06 percent.

Huaneng Power plunged 1.60 yuan to 11.89, while Air China slid 1.07 yuan to 9.68. They've lost 19 percent and 13 percent, respectively, since stamp duty was raised last week.

China Petroleum & Chemical Corp., Asia's biggest oil refiner, dropping 1.52 yuan to 13.65.

China Vanke, the nation's biggest property developer, retreated 1.82 yuan, or 10 percent, to 16.38. Poly Real Estate Group Co., China's third-largest developer by market value, dropped by the daily limit, sliding 3.94 yuan to 35.51.

The government also plans to build more low-cost housing, the Economic Times reported, citing unidentified sources.

China has stepped up measures to curb lending that's fueling a surge in real estate prices, seeking to maintain social stability. The government in February tightened tax rules on property gains, after it earlier raised interest rates and taxes and restricted lending to developers. Average prices in China's 70 largest cities rose 5.4 percent in April from a year earlier, according to the country's top planning body.

The Shanghai Composite Index, which tracks the bigger of China's stock exchanges, slid 8.3 percent to 3670.40. The Shenzhen Composite Index, which covers the smaller one, lost 7.9 percent to 1039.90.

To contact the reporter on this story: Zhang Shidong in Shanghai at szhang5@bloomberg.net

Last Updated: June 4, 2007 06:34 EDT