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Market Bounces back on Big-cap Stock Rally
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A sharp rebound in the prices of big-cap stocks, especially banks, yesterday helped stabilize the stock market after a 6.5 percent plunge the day before.

The key Shanghai Composite Index rose 56.57 points, or 1.4 percent, while the smaller Shenzhen Composite Index closed at 1187.51. Turnover was a more modest 243.11 billion yuan, down from the record 271.29 billion yuan on Wednesday.

In yesterday's trading, 245 stocks closed higher and 639 finished lower than the day before.

Among the biggest gainers were the banks. Shares of Shanghai Pudong Development Bank jumped 10 percent to 33.76 yuan. Huaxia Bank rose 8.27 percent to 13.09 yuan and China Merchant Bank increased to 21.72 yuan, up 8.22 percent.

Analysts said many investors, worried about possible further action by the government to clamp down on speculation, were seeking refuge in banks and other big-cap stocks, which are usually less susceptible to short-term wide swings.

"It's natural to see capital flow to big-cap stocks after violent fluctuations in the market," Li Jingyuan, an analyst with Haifu Futures, said.

Banks look particularly attractive because the monetary measures, including the increases in interest rates and bank reserve ratio, had helped slow down the rise in the prices of financial stocks in the latest market rally.

"They (bank shares) look like good buys compared with stocks in other sectors," Liu Jun, an analyst with Oriental Securities, said.

"The price adjustment in many bank shares in the past weeks has made them seem cheaper than those in other sectors," he added.

Analysts maintained that the increase in the stamp tax to 0.3 percent from 0.1 percent by itself was not drastic enough to reverse the stock market uptrend. But the tax rise was seen by many investors as a firm indication of the government's resolve to ensure stable growth of the stock market.

Nagging worries about further administrative and fiscal measures have apparently forced many investors to rethink the composition of their portfolios, stock analysts said.

(China Daily June 1, 2007)

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