Chinese shares closed lower on Thursday, ending a two-day winning streak, as the latest data on the non-manufacturing sector dampened investor confidence.

The benchmark Shanghai Composite Index went down 0.74 percent to finish at 2,043.7. The Shenzhen Component Index dropped 0.49 percent to close at 7,298.

The purchasing managers' index (PMI) for China's non-manufacturing sector dipped 0.5 percentage points in March from a month earlier to 54.5 percent, data showed on Thursday. A PMI reading above 50 percent indicates expansion, while a reading below 50 percent reflects contraction.

The index tracks activity in a number of sectors, including construction, software, aviation, railway transport and real estate.

Combined turnover on China's two bourses shrank to 149.42 billion yuan (24.29 billion U.S. dollars) on Thursday from 165.44 billion yuan on the previous trading day.

Bank and real estate shares led the decline on Thursday, while the ChiNext Index, tracking China's Nasdaq-style board of growth enterprises, performed better than the blue-chip Shanghai Composite Index, with the latest announcement of a tax breaks policy for smaller firms.

The ChiNext Index dipped 0.14 percent to end at 1,326.18 points on Thursday. The State Council, China's cabinet, on Wednesday announced that tax breaks for small and micro firms will be extended till the end of 2016.