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2nd Ld-Writethru: China stocks rally on government support

Xinhua, July 9, 2015 Adjust font size:

China stocks staged a strong rally on Thursday, recovering from a steep drop in the past three weeks, as the latest government prop-up measures have borne fruit.

The benchmark Shanghai Composite Index jumped 5.76 percent, the biggest daily rise in six years, to finish at 3,709.33 points.

The Shenzhen Component Index surged 4.25 percent to close at 11,510.34points.

The ChiNext Index, tracking China's Nasdaq-style board of growth enterprises, climbed 3.03 percent to end at 2,435.76 points.

Combined turnover of the two bourses shrank to 950.8 billion yuan (155.5 billion U.S. dollars) from 1.1 trillion yuan the previous trading day.

Only two stocks lost in Shanghai and Shenzhen at the closing. More than 1,000 shares on the two bourses jumped by the daily limit of 10 percent.

The Shanghai index has lost more than 30 percent of its value since a spectacular bull run ended with a peak on June 12. It has been driven lower by restrictions on margin trading, concerns about overvaluations, and fears of further losses.

Since last weekend, the government has rolled out a batch of supportive measures to halt the further slump of the market, including moves to pour funds and restrictions on futures trading on a major small-cap index.

On Thursday, Chinese police joined the securities regulator to investigate "malicious short selling" to stem the massive sell-off.

The China Banking Regulatory Commission (CBRC) announced on Thursday morning that it will allow banks to extend mortgage loans that use share funds as collateral to prop up the stock market.

China's central bank also reiterated that it will continue to support the liquidity needs of the China Securities Finance Corporation Limited (CSF), the national margin trading service provider. It said it has made sufficient re-lending to the CSF and approved the latter to issue short-term financial bonds in the interbank market to replenish liquidity.

China's securities watchdog said on its website late on Wednesday that holders of more than 5 percent of a company's stock would be barred from selling for the next six months.

"All these measures benefit stock market liquidity and help stabilize the market," said Guan Qingyou, deputy head of Minsheng Securities.

But this is only the first step, he said, and the future trend of the index still depends on the market itself.

Central China Securities said the index leap shows that investors' confidence is gradually recovering, though it will take time for the market to recover as there will still be fluctuation in the coming weeks. Endi