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Stocks spurt at government rescue

By Dong Zhixin (chinadaily.com.cn)
Updated: 2008-09-19 11:49

Chinese stocks snapped up three straight days of losses with a sharp rise on Friday after the government stepped in to revive the market, cutting trading tax and promising share buybacks.

The benchmark Shanghai Composite Index jumped 9.07 percent at the opening bell, recovering the steep losses in the previous three sessions due to the shockwaves of the US financial woes.

The rally came after the Ministry of Finance announced overnight that the stamp tax on stock purchases will be scrapped from Friday. Investors interpreted the move as a signal that the government will not let the market fall further.

The State-owned investment agency Central Huijin provided another boost. As the majority shareholder of three major banks, the Industrial and Commercial Bank of China, Bank of China and China Construction Bank, Huijin said it would buy shares of the three lenders in the secondary market.

The aim is to "guarantee the government's controlling stake" and "boost their stock prices", it said in a statement.

At the news, all but one financial shares jumped 10 percent, the maximum allowed by the exchanges. The Industrial and Commercial Bank of China jumped 9.88 percent.

Banking shares alone account for more than 25 percent of the Shanghai Composite Index. Therefore, their performances can partly determine whether the rebound is short-lived or sustained.

On top of the Huijin pledge, the State-owned Assets Supervision and Administration Commission voiced their support for the major State-owned firms to buy back their shares.

Shrugging off the on-going scandals involving dairy producers, Beijing Sanyuan Food Co. surged by its daily limit, as none of its products were found to contain melamine, a chemical that have led to the death of four babies across the country.

The long-awaited official rescue came after the Shanghai index lost 70 percent in less than one year, with valuations nearing record low levels. Experts have called on the government to intervene to put a floor on investor confidence.

At the start of the week, the central bank cut lending rates and reduce the amount of cash small banks must set aside as reserves in a sharp reversal in the country's monetary policy.

The tight monetary policy put in place at the end of last year to fend off inflation was partly blamed for the stock woes.

However, the energizing impact of looser credit was overwhelmed by fears over the spillover effect from US financial turmoil, in which Lehman Brothers filed for bankruptcy protection and Merril Lynch sold itself to Bank of America.

Across the globe on Wall Street, the Dow Jones Industrial Average leapt 410 points on Thursday to 11,019, powered by reports of a US government and Congress plan to soak up bad debts from troubled banks.