China shares jump after tax cut

SHANGHAI, China (AP) -- Chinese stocks soared Thursday after the government cut a tax on stock transactions in a move widely seen as an effort to boost slumping markets.

The rebound came as many global markets are recovering modestly after being battered since the start of the year amid worries about the U.S. credit crisis and slower global growth.

The benchmark Shanghai Composite Index surged as much as 9.6 percent in early trading, as investors resumed buying after weeks of holding back in hopes of market-boosting news. By midday, it was up 6.7 percent at 3,498.61.

The jump came after the government announced late Wednesday that it was cutting a stamp tax on share transactions to 0.1 percent from 0.3 percent. That reversed a tax increase May 30 when regulators were trying to cool surging stock prices.

The communist Beijing government keeps its markets isolated from global money flows, and most shares are off-limits to foreign buyers. But investors are watching them closely for signs of a possible recovery, and markets abroad often react to swings in Chinese prices.

The latest tax measure took effect Thursday, the official Xinhua News Agency reported. It said the step was endorsed by the Cabinet, Finance Ministry and China's tax agency.

Chinese stock prices have fallen sharply since October, ending a boom that began in mid-2006. The main index has dropped by nearly half, hitting levels last seen in March 2007.

"In recent weeks, expectations have been mounting on the government to take decisive steps to prop up the domestic markets," Jing Ulrich, chairwoman of China equities for JPMorgan Chase & Co., said in a report to clients.

"The lowering of stamp duty ... is among the most aggressive steps the government could have taken to improve sentiment," Ulrich wrote.

China's economy has grown by more than 10 percent annually for five straight years and the first-quarter expansion was 10.6 percent over the same period of 2007.

But analysts say that in China's state-dominated economy, stock prices are especially sensitive to policy changes and often are disconnected from the overall economy.

Alarmed by an 11 percent slide in the Shanghai index last week, the market regulator announced new restrictions late Sunday on sales of large blocks of shares newly freed from lockup periods.

That move, showcased in front-page headlines of state newspapers, was aimed at reassuring investors who worry that the market will be diluted when $430 billion in previously nontraded shares become available for trading this year. But it seemed to do little to spur buying.

For the first time in more than a year, the Shanghai benchmark dropped below 3,000 briefly on Tuesday before rebounding later in the day. Rumors that another market-boost measure was in the works helped push the index up 4.2 percent on Wednesday.

The stamp tax reduction seemed to have done the trick, for now.

The Shanghai index was helped Thursday by a 7.1 percent advance E-mail to a friend

Copyright 2008 The Associated Press. All rights reserved.This material may not be published, broadcast, rewritten, or redistributed.

All About China