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Stocks Dive After Stamp Tax Rise
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All the three major indices of Chinese equity markets nosedived Wednesday by more than six percent, as the government sent out a strong signal to cool the stock market by imposing a higher stamp tax on securities trading.

The two bourses in Shanghai and Shenzhen registered a combined turnover at a fresh record of 416.7 billion yuan (US$54.1 billion), with investors rushing to cash in their stocks for fear of further downward adjustments due to government policy changes.

The benchmark Shanghai Composite Index, which tracks both yuan-denominated A shares and hard-currency B shares, closed at 4,053.09 points, down 281.83 points, or 6.5 percent, from the previous close.

The smaller Shenzhen Component Index closed at 12,627.15 points, down 829.45 points or 6.16 percent.

The Hushen 300 Index reflecting the combined movements of the Shanghai and Shenzhen stock exchanges posted a drop of 281.83 points to close at 4168.29 points, down 6.76 percent.

The Ministry of Finance announced on Tuesday night a rise in the stamp tax on securities trading from 0.1 percent to 0.3 percent beginning May 30.

The move was described as "a drastic correction" by Cai Zhizhou, a researcher with Peking University.

The stock market, in response, started sharply lower at 4,087.41 points in the morning session, down 247.52 points, or 5.71 percent, and was unable to recover despite of a slight rise during the day.

All the major heavyweights fell except Sinopec, which rose 3.29 percent. Share prices of the Industrial and Commercial Bank of China dropped by 4.83 percent to close at 5.32 yuan (70 US cents) and Bank of China by 7.12 percent to 5.48 yuan (72 US cents).

Prices of about 860 stocks fell by the daily limit of 10 percent, indicating the government's intention to discourage irrational investment was taking effect.

The previously strong Olympic Games-related and real estate shares, also declined, but demonstrated a good resistance to volatility. Beijing North Star Company Limited, a real estate developer, rose more than 7 percent.

Securities brokers were among those who suffered huge losses. CITIC Securities closed at 57.6 yuan (US$7.53), down 6.4 yuan (84 US cents) or 10 percent.

While higher stamp taxes played a part, the market itself needed corrections as major indices had risen by more than 40 percent since the spring festival, said Teng Yin, of Everbright Securities.

Raising the stamp tax actually triggered the market's need for adjustment, said Teng.

The market may expect further corrections in the short run, said analysts with Chinalion Securities.

(Xinhua News Agency May 30, 2007)

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