NEW YORK, July 6 (Reuters) - Chinese stocks trading in the United States fell on Monday despite China's steps over the weekend to support its market, which has shed almost 30 percent in three weeks.
Chinese ADRs, which have become tightly correlated with the Shanghai Composite index since the Chinese benchmark peaked in mid June, dropped more than 3 percent on Monday, on track for the sharpest daily drop in 18 months.
The Shanghai Composite ended up 2.4 percent Monday after a collective pledge over the weekend by China's top brokerages and fund managers to invest at least 120 billion yuan or more than $19 billion into stocks, while Central Huijin, a unit of China's sovereign wealth fund, said it had recently bought ETFs and would continue to do so.
However, the view from the United States is that following a 70 percent run-up from the year lows to its June high, the Chinese market still has room to fall.
An index that follows shares of Chinese companies that trade in the United States fell 3.5 percent on Monday, in a move away from a recent trend of being more closely correlated with the Shanghai shares.
The 20-day correlation between the ADR index and the Shanghai Composite spiked from -0.28 on June 17 to 0.87 on Monday, its highest since April. A reading of 1 would indicate both indexes moving in the same direction and magnitude.
The drop in ADRs points to caution from investors outside of China about the effectiveness of the government's measures.
"The government is seeking to temper this fall, but I don't think there's a lot the government is going to be able to do," said Bryant Evans, investment advisor and portfolio manager at Cozad Asset Management in Champaign, Illinois.
"There was a good bid from people borrowing to increase their stock positions on the way up, so it got a little frothy."
On Monday, the Hong Kong equities benchmark fell 3.2 percent, the largest daily drop in more than three years.
The value of equities Chinese investors bought with borrowed money peaked this cycle at a record 2.27 trillion yuan ($365.3 billion) on June 18 according to Thomson Reuters data, while the Shanghai Composite hit its highest since early 2008 on June 12. At the session low on Friday, the index had lost 29.9 percent.
"Brokerage firms getting together pulling funds to buy the market ... seems like desperate measures," said Wasif Latif, head of global multi-assets at San Antonio, Texas-based USAA Investment Management.
"It looks like until overall margin debt goes down to more normal levels you could see a continuation of this (selling)."
Among the largest drops on Monday trading, ADRs of Guangshen Railway fell 10.5 percent to $23.25, Sinopec Shanghai Petrochemical fell 13.9 percent to $44.50 and Yanzhou Coal Mining Co fell 11.4 percent to $6.72.
Among the largest companies, U.S.-traded shares of China Petroleum & Chemical Corp fell 1.1 percent to $83.37, China Life Insurance Co lost 3.5 percent to $20.55 and PetroChina Company shed 1.1 percent to $109.43.
Reporting by Rodrigo Campos; Editing by Andrea Ricci