Hong Kong: Chinese stocks plunged Monday leading an Asian meltdown on the first day of 2016 trading as more weak factory data fanned fears about a slowdown in the world's number two economy.

The plunge in mainland markets further spooked investors already nervous about a flare-up in tensions between Iran and Saudi Arabia.

Authorities in China suspended trading on its stock markets in the early afternoon after shares sank seven percent.

The drop in the CSI300 index -- which covers the Shanghai and Shenzhen bourses -- for the first time triggered an automatic early closure under a new system to curb volatility after an earlier 15-minute trading halt failed to stem the declines.

The sharp losses revived memories of the summer rout that saw Shanghai crash about 40 percent and trillions of dollars wiped off valuations.

Dealers began selling immediately after data from official and private surveys of manufacturing showed activity shrinking in December. The reports are the latest to highlight weakness in the economy which is expected to have grown in 2015 at its slowest pace in a quarter of a century.

Adding to the selling is the looming expiration of measures brought in to curb last year's share slump.

China on Monday also cut the yuan's value against the greenback making it weaker than 6.5 for the first time in more than four-and-a-half years as pressure on the currency mounts from the country's growth slowdown.

"The weaker PMI and the weaker yuan are the likely triggers" said Michael Every head of financial markets research at Rabobank Group in Hong Kong.

The Shanghai market ended 6.9 percent lower while Shenzhen shed 8.2 percent.

Markets across Asia were stung by the losses as well as news that Saudi Arabia had severed diplomatic ties with its old foe Iran Sunday after protesters ransacked its embassy in Tehran following the execution of a Shiite cleric.

Riyadh gave Iranian diplomats two days to leave the kingdom while the supreme leader in Tehran said Saudi Arabia would face "quick consequences" for the execution.

The developments are the latest to inflame the region and join a list of negative news that hurt world markets over the past year including China's economic malaise plunging oil prices and anaemic global growth.

- 'Not good news' -

"It's going to be a testy start to the week" said Angus Nicholson a Melbourne-based market strategist at IG Ltd.

"The execution raises uncertainty about the oil price with concerns and tensions in the Middle East and that will be a real driving force."

With Saudi Arabia and Iran two of the biggest oil producers the price of the commodity rallied Monday -- having suffered a severe slump in 2015 on weak demand and a global glut.

US benchmark West Texas Intermediate climbed 1.7 percent and Brent surged 1.9 percent.

Investors fled to safe investments such as the US dollar and yen sending stocks and emerging-market currencies falling.

Tokyo's Nikkei index tumbled more than three percent as a strong yen hit exporters while Hong Kong was off 2.7 percent and Seoul ended 2.2 percent down.

On forex markets the dollar surged 1.2 percent against its Australian counterpart while it was up 1.3 percent against the South Korean won and 0.9 percent against the Malaysian ringgit.

It also saw sharp gains against the Taiwan and New Zealand dollars as well as Indonesia's rupiah and the Thai baht.

However the greenback fell below 119.00 yen to a four-month low with the Japanese unit considered a safe haven investment in times of turmoil.

"The Saudi situation is geopolitically not good news" Kengo Suzuki chief currency strategist at Mizuho Securities in Tokyo told Bloomberg News.

In early European trade London sank 1.0 percent Paris shed 1.2 percent and Frankfurt lost more than three percent.

AFP