Led by telecommunication shares such as China Unicom, the benchmark Shanghai Composite Index, which covers both A- and B-shares, is declining after surging to a record high of 4,000 points in the morning session.

The benchmark Shanghai Composite Index broke the 4,000-point mark at 10:49 a.m., up 1.06 percent, and began to decline afterwards.

Analysts said the market may undergo drastic vibration after the index breaks the mark.

An influx of investor cash after China's weeklong May Day holidays helped push share prices further up when the markets reopened on Tuesday.

Analysts said the confidence was spurred by gains on overseas markets during the seven-day shutdown of the Shanghai and Shenzhen markets.

The Shanghai Composite Index closed at 3,950.01 points on Tuesday, up 108.74 points from the previous close of 3,841.27, on a turnover of 207.4 billion yuan.

The component index on the smaller Shenzhen Stock Exchange climbed 4.93 percent, or 535.24 points, to close at 11,401.12 points on a turnover of 105.7 billion yuan.

The central parity rate of China's currency yuan, also known as Renminbi (RMB), hit new high at 7.6951 yuan to one U.S. dollar on Tuesday.

Analysts warned of potential stock bubbles as expectations of RMB appreciation would draw hot money from abroad into China's equity markets.

In the first quarter to end March, 4.78 million stock accounts were opened in China and in April alone, another 4.5 million new accounts were set up.

Editor: Yan