SHANGHAI - Chinese stocks rebounded in volatile trading Tuesday
following their sharpest one-day drop in three months as strong buying by
institutions offset selling by retail investors.
The benchmark Shanghai Composite
Index gained 2.6 percent to 3,767.10 after a rollercoaster session that saw the
index plunge as much as 7.2 percent earlier in the day. It fell 8.3 percent on
Monday - the benchmark's sharpest decline since an 8.8-percent drop
February 27 triggered a global market sell-off.
A woman looks at stock prices on an electronic board in
Beijing June 5,2007. China's main stock index plunged 5.66 percent on
Tuesday morning, bringing its losses since a hike in the stock trading tax
last week to 20 percent. [Reuters]
The Shenzhen Composite Index for China's smaller second market rose 2.5
percent to 1,066.05.
Regional market reaction was muted, with Japan's benchmark index climbing 0.5
percent and Hong Kong shares up 0.7 percent by mid-afternoon.
Chinese investors had dumped shares Friday and Monday in reaction to a
government decision last week to triple a tax on stock trades, viewing the move
as a signal regulators are determined to cool frenzied trading that had lifted
stock prices nearly 60 percent since the start of the year, following a 130
percent surge in 2006.
By Tuesday's close, the benchmark Shanghai index was 13 percent below its
record high of 4,334.92, hit May 29. But it was still up 40 percent for the year
China's stock markets are largely closed to foreign investors. Analysts
attributed the sell-off Monday to panic-selling by individual retail investors.
The stock market boom has prompted millions of first-time investors to jump
into the market, tapping savings and retirement accounts and mortgaging homes to
buy stocks. Authorities are worried that the new money is fueling a bubble in
Shifting to damage control, on Tuesday state-run newspapers carried prominent
articles announcing the approval of four new investment funds.
Financial newspapers sought to reassure investors, asserting that the tax
hike on stock trades would help the markets by encouraging longer-term
investments in better stocks.
International stock markets have shrugged off the declines in mainland
Chinese declines. Most Asian markets rose Monday, and Wall Street also eked out
Economists say the recent fall in Chinese prices should have only a modest
impact on the overall economy because China's growth is driven by exports, not
the financial markets, and families have still much more money in savings than