A Chinese investor watches the stock trend on the cell phone at a stock brokerage house, July 3, 2015.[Photo/IC]

Market faith has proven fragile, as stocks continued their losing streak despite policy support and the benchmark Shanghai index retreated by the biggest three-week decline since 1992.

The Shanghai Composite Index dived 5.8 percent to finish at 3,686.92 after swinging nearly 300 points, while the Shenzhen Component Index slumped 5.3 percent to 12,246.06.

About $2.8 trillion of market value has evaporated over the past three weeks, even as securities regulator failed to keep margin investors from unwinding positions at a record pace.

The outstanding balance of margin debts fell for a 10th day as of Thursday from a record high, according to Shanghai Stock Exchange.

"Though jettisons among margin traders may come to an end, the recent plunge in general triggered a pessimistic sentiment, which sent the markets on a down spiral," said Yang Delong, chief strategist at China Southern Asset Management.

"Investors will come around, as regulators unleash more boosting policies," said Yang, adding that by sparing no effort to stem the plunge, State-owned financial institutions may step in with "real money" to buy shares.

Nearly 1,000 stocks sank to a daily halt on Friday, led by utility, environment and sports sectors.

The worst monthly slump in Chinese stocks in two years wiped away more than $34 billion in combined net worth of the richest people in mainland and Hong Kong in June, according to statistics compiled by Bloomberg.