Malaysian shares plunged nearly 4 percent in Thursday morning trade, with the benchmark Composite Index breaching a key psychological point, pulled by steep falls on Wall Street and domestic political uncertainty.

However, a mini technical recovery helped the index - which dived at the opening bell - to trim losses during afternoon trade.

The Kuala Lumpur Composite Index closed the day at 991.66 points, down 1.13 percent.

Dealers said players were still trying to digest a sudden move by Prime Minister Abdullah Ahmad Badawi to hand over his finance portfolio to deputy premier, Najib Abdul Razak, and assuming instead the latter’s defence minister post.

'Main issue is still Anwar'

Abdullah, under siege to quit, is facing rising dissent from within his Umno party and a growing challenge from Opposition Leader Anwar Ibrahim, who has promised to form a new government soon.

"The main issue is still Anwar and when he will form the next government and what sort of action the current government may take against him," said David Cohen, director of of Singapore-based Action Economics.

Having broken through the key 1,000 points support for the first time in two years, dealers now expect soft, sideways trading in the days ahead.

They expect any relief rallies to be shortlived, with strong support for the index pegged only at the 900 points mark.