SHANGHAI'S key stock index declined in the morning session as the weak investor sentiment outweighed the upside of tax cuts next year.

The Shanghai Composite Index snapped last Friday's rebound, dropping 0.28 percent to 2,198.51 points by noon break. Turnover remained sluggish, standing at 19.9 billion yuan (US$3.2 billion).

The Ministry of Finance mapped out a path towards next year's structural tax reduction last week, including lower tariffs on imports to balance trade and extended coverage of value added tax to replace business tax to boost economy.

But caution was still the prevailing sentiment on the market, which had skidded along a downward track for seven consecutive weeks as concerns persisted over a hard landing of China's economy amid property curbs and monetary tightening.

Financials paced the retreat on speculation that the liquidity crunch may intensify if the government continues to take a hard line on the bank reserve-requirement ratio.

China Construction Bank slumped 1.53 to 4.49 yuan. Industrial and Commerce Bank of China, the country's biggest bank, lost 0.96 percent to 4.13 yuan.