Investors look downcast at a brokerage house in Nantong city, Jiangsu province, July 27, 2015. [Photo/CFP]

Stocks dived on Monday, with the benchmark Shanghai index tumbling the most in eight years, amid concerns that a government-supported market rebound is unsustainable.

The Shanghai Composite Index closed at 3,725.56, down 8.5 percent, while the Shenzhen Component Index sank 7.6 percent to 12,493.05.

More than 1,000 stocks slid by the daily limit of 10 percent to a halt, led by finance and resources sectors.

China National Petroleum Corp and Sinopec Group, the country's State-owned oil giants and heavily-weighted stocks of the Shanghai gauge, fell 9.6 and 10 percent respectively.

The finance industry gauge sank 9.1 percent on Monday, as banks, brokerages and insurers all edged down.

Bank of Communications, Huaxia Bank, Ningbo Bank, Beijing Bank, Nanjing Bank, New China Life Insurance, China Pacific Insurance, and China Life Insurance tumbled 10 percent. About 22 brokerages fell by the daily limit of 10 percent.

The daily turnover reached 1.3 trillion yuan. Latest data showed the outstanding balance of margin trading at the Shanghai bourse fell for the first time in five days to 940.8 billion yuan as of Friday.

The rout put an end to a six-day rally after the Shanghai gauge rebounded 16 percent from its July 8 low through Friday, as regulators took a string of moves to shore up the market, which included suspending initial public offerings, banning major shareholders from selling, investigating into "malicious" short-selling and granting government agency liquidity to help finance stock purchases.

The retreat came as profits at major industrial firms dropped 0.3 percent year-on-year in June, down from a 0.6 percent growth posted in May, the National Bureau of Statistics (NBS) said on Monday.

Growth in profits was significantly weaker in the first half of 2015, suggesting monetary policy needs to remain accommodative, said Nomura in a note, adding that the central bank will likely to cut reserve requirement ratio (RRR) in August as "the improvement in growth momentum is still fragile".

The country's manufacturing activities continued to decline in July, as the Caixin flash Purchasing Managers' Index fell to a 15-month low to a much weaker-than-expected 48.2 from 49.4 in June.

The CSI 300 Index dived 8.6 percent to 3,818.73 on Monday.