The central government's decision to increase stakes in three banks will help soothe investor jitters amid troubled market, analysts said yesterday.

"Finally, here comes good news," Patrick Shum, executive director of Karl Thomas, said.

Central Huijin, an arm of China Investment Corp, the country's sovereign wealth fund, will buy shares in three State-owned lenders - Bank of China, Industrial and Commercial Bank of China and China Construction Bank, China Central Television reported yesterday.

"I see a short-term rally for these shares," Shum said.

Negative news has dogged mainland banking stocks in past days. Investors fretted over their squeezed margins after the mainland's first lending rate reduction in more than six years on Monday.

These stocks were further dumped by fund managers after some of them reported exposure to debts of bankrupt Lehman Brothers.

The central government's move clearly showed it is willing to shore up the stock market by using its massive foreign reserve, Shum said.

"That helps restore the confidence in Hong Kong and on the mainland," he said.

Ronald Wan, head of research of Bank of Communications International, believed Central Huijin's purchase is a clear signal of the luring valuation of mainland banking shares.

"There is no doubt that they have already been oversold," he said. Most mainland banks' price-to-earnings ratio has come to 10 times, leveling with that of global giants such as HSBC.

"Investors will see value in these battered banking shares, and Huijin's move will serve as a timely booster," he said.

Industrial and Commercial Bank of China was overtaken by HSBC on Wednesday as the world's most valuable lender. Its shares, at one point, slid to a near two-year low of HK$3.45 yesterday, but managed to rally to close at HK$4.02.

Bank of China's H shares even went below its offering price of HK$2.95, closing at HK$2.88 yesterday. China Construction Bank edged down 0.63 percent to HK$4.7.

However, a full-swing recovery of banking shares depends on a combination of factors including the external market trend and the magnitude of the government's support, both analysts said.

"There are a lot of uncertainties ahead and the global markets are still clouded by the historic shake-up in the Wall Street," Wan said.

(HK Edition 09/19/2008 page1)