By Chao Deng 

China shares are headed for their worst month in over two years on Friday, after confidence in a government-led recovery wavered earlier this week, knocking shares lower.

The Shanghai Composite Index is down 1% at 3666.47. The smaller Shenzhen Composite fell 0.3% to 2122.36.

China's main stock index is on track to lose 9% this week, and is down 13% month to date, its weakest monthly performance since June 2013. That would make Shanghai one of the worst-performing indexes globally this month.

In Hong Kong, the Hang Seng Index is up 0.4%, and an index of Chinese companies listed in the city rose 0.5%. Still, Hong Kong shares are on track to lose 6% this month, marking its worst monthly performance since September.

On Friday, China's securities regulator announced it had launched a probe into automated trading and restricted 24 stock accounts suspected of "influencing securities trading prices," according to its official website. The investigation seeks to root out possible causes of the recent volatility that has rattled China's stock market.

China shares have been reeling since an 8.5% loss on Monday, the biggest daily decline in more than eight years, when investors dashed for the exits on worries that government-backed funds might wind down market support.

Shanghai is down 28% since its peak in mid-June, despite fresh rhetoric from the securities regulator that it wouldn't pull away from buying shares. The index has rebounded by about just 4% since the deepest point of the selloff on July 8.

Fluctuating confidence about the government's role in the market has led to wild intraday swings in recent days. While that's spooked some investors, others have seen an opportunity to chase short-lived surges while the government appears to be buying in.

"The game between speculative funds and state funds adds to volatility on the market," said Miller Zhao, analyst at Trade Blazer, a Shanghai-based private-equity firm. "To put in plain language, speculative investors want to take profits from government-backed funds."

Analysts warned of further volatility in Friday's afternoon trade ahead of Chinese official manufacturing data Saturday. An early gauge of manufacturing last week, which hit its lowest level in 15 months, could throw doubt on the health state-owned enterprises, according to analysts at IG. "This question might see negative trading in the afternoon as investors close out positions to mitigate that possible risk," wrote IG analyst Evan Lucas in a note.

Fears that China's selloff could spiral beyond the domestic equities market has unsettled the rest of the Asia region in recent weeks. Investors have withdrawn $12.1 billion from emerging-market Asian equity funds in the last three weeks ending July 29, the largest three-week outflow in more than a decade, according to ANZ Research and EPFR Global, a fund data provider. The withdrawals also come as investors prepare for the Federal Reserve to raise interest rates in the U.S. later this year.

Some $1.8 billion of that outflow has come from China, which has suffered its deepest market selloff since the global financial crisis.

Signs of a deepening slowdown in China also have pushed currencies in Asia to multiyear lows this month. Currencies are down, on average, 2% for the month against the U.S. dollar, while the Australian dollar has fallen over 5% over that period and New Zealand's dollar is down 2.8%.

"[A]n emerging market selloff will likely be the main theme in [the second half], as the Fed prepares to normalize when China soft lands," said Stephen Jen, managing partner at London-based hedge fund SLJ Macro Partners. "There is very little that the emerging-market countries can do to avert a further sharp selloff in their currencies."

Declines in currencies, in part driven by sluggish global demand and a broadly stronger U.S. dollar, have failed to give a boost to exports. Last week, China signaled it would allow its currency to move more freely, by widening the yuan's trading ban, another factor pressuring the region's economies as Chinese goods could become more competitive.

Commodities are another casualty of a stronger U.S. dollar and expectations of a rate increase. Many materials are priced in the currency, making them more expensive for foreign buyers as the dollar strengthens. Higher interest rates in the U.S. also give investors incentive to shift to other assets, as commodities don't provide any income and cost money to hold.

Gold has sank to five-year lows, and is currently trading down 0.4% at $1083.70 a troy ounce in Asia.

Concerns about oversupply and weak demand in China, one of the world's biggest commodities consumers, have weighed on oil prices in recent months, too. Brent crude, the global oil benchmark, is down 21 cents to $53.10 in Asian trade, ahead of a U.S. government supply report on Friday in the U.S.

Stocks elsewhere in the region were mixed, with the Nikkei Stock Average flat, as disappointing consumer-spending data offset a better-than-expected inflation reading.

Australia's S&P ASX 200 was up 0.3% and South Korea's Kospi was down 0.5%. Overnight, U.S. economic output in the second quarter came in slightly slower than expected at an annualized 2.3%, another piece of patchy data that casts uncertainty over the timing of an expected rise in U.S. interest rates.

In corporate news, shares of Noble Group Ltd. slipped for a second-straight day--falling as much as 22% from Wednesday's close--as short sellers pile in on the commodities trader, which earlier this year faced criticism of its accounting practices. The company has denied any wrongdoing. Shares are down about 10% Friday.

Anjani Trivedi and Jake Maxwell Watts contributed to this article.

Write to Chao Deng at Chao.Deng@wsj.com