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Stocks edge up 0.7% as rally loses steam

(China Daily/Agencies)
Updated: 2008-09-25 10:36

Chinese stocks closed up 0.7 percent yesterday, reversing early losses as institutional investors bought large-caps such as China Unicom in late trade in an apparent response to a government appeal to support the market.

The benchmark Shanghai Composite Index ended at 2216.811 points, compared with an intraday low of 2116.960 hit in early trade, when it was down 3.84 percent.

Gaining Shanghai stocks outnumbered losers by 714 to 206, while turnover in Shanghai A shares shrank to 48.90 billion yuan from Tuesday's 77.32 billion yuan.

China Unicom closed up 7.72 percent at 5.3 yuan. Institutions selected China Unicom after Deutsche Bank upgraded its similarly named Hong Kong indirect subsidiary to "buy" from "hold".

The index soared a total 18 percent on Friday and Monday, buoyed by a government rescue plan that included abolishing the tax on share purchases and having Central Huijin, an arm of China's sovereign wealth fund, buy shares from the market.

But the rally appears to have lost some steam, with the stock index dropping 1.56 percent on Tuesday, amid concerns that the government fund may not continuously buy stocks if stock prices reach higher levels.

Investors are also concerned that the outlook for the proposed $700 billion US financial rescue scheme has now become more cloudy because of the disagreement in the US Congress.

"Institutional investors bought late in the session today, apparently aimed at bolstering shaky sentiment," said senior stock analyst Chen Jinren at Huatai Securities.

"If the government and their entities continue their efforts to boost the market, share prices should be able to stage another several rounds of rebounds in the medium term," he said.

Analysts, however, said that any decent rebounds should come only after the week-long National Day holiday next week as quite a large number of traders and investors have already returned to their homelands for the so-called "Golden Week" break.

Top lenders Industrial and Commercial Bank of China (ICBC), Bank of China and China Construction Bank (CCB) said on Tuesday that Central Huijin had bought 2 million Shanghai-listed shares in each of the banks.

But the news did not support the stocks, partly because the size of the purchases was so small compared to the banks' size ICBC, for example, has 334 billion Shanghai-listed shares.