TAIPEI: Just as market analysts were predicting a significant technical surge, Taiwan stocks hit an air pocket yesterday, plunging 0.83 percent for their biggest daily drop since July 13. Investors locked in profits in UMC and other major technology shares.

The main TAIEX share index was down 59 points to 7,083.63, retreating from an 11-month closing high on Tuesday.

"There was a broad selloff in heavyweights such as UMC (United Microelectronics Corporation) and (Smartphone maker) HTC Corp, as investors anticipated a pullback following their recent gains," said Katty Wang, a fund manager at Prudential Financial Securities Investment Trust.

"But I don't think the main index will pull back that much because corporate fundamentals are quite positive, which have been reflected in the results disclosed by some US companies," Wang said.

One bright spot was China Steel, Taiwan's top steel maker, which jumped 3.58 percent.

The company announced earlier this week that it plans to raise its domestic product prices by 9.4 percent in September, the biggest increase in a year, as demand picks up on signs of a recovery in the global economy.

Earlier in the day, Capital Securities Corp, said the benchmark stock index may rise to a one-year high by next week after breaching a key resistance level on Monday.

According to Capital's technical analysis, TAIEX was poised to gain a further 3.2 percent to 7,368, its next resistance level marked by the high reached on July 24, 2008, said Diana Wu, a vice-president at Capital Securities.

The TAIEX is the eighth-best performer in the world this year among stock exchanges, having advanced 56 percent on expectations that stronger ties with the mainland, Taiwan's biggest trading partner, will accelerate the island's recovery from its first recession since the technology bubble burst in 2001. Further gains may be driven by strong second-quarter earnings, Wu added.

Bloomberg News

(HK Edition 07/30/2009 page2)