WITH hundreds of stocks rallying to their 10 percent daily cap and only one falling, Shanghai's key index soared 9.29 percent yesterday after the government slashed the stamp duty on share trading.
The long expected tax cut is a clear signal that the government is trying to shore up the sagging market which has fallen more than 50 percent this week from last October's peak amid concern of rising inflation, an economic slowdown and a heavy supply of new shares.
The benchmark Shanghai Composite Index surged as much as 9.6 percent in early trade, before closing 9.29 percent up at 3,583.03. Turnover was sharply higher at 189.6 billion yuan (US$27.1 billion), against Wednesday's 86.1 billion yuan.
"The tax cut will help extend the recent rebound in the market but how much the rebound could be is up to whether the government will take further measures to tackle heavy new equity supplies," CITIC China Securities analyst Zhang Xiaojun said.
The cut is the latest market-boosting move following Sunday's announcement by the market regulator to restrict the sale of previously non-tradable shares freshly freed from lock-up periods.
The weekend announcement came after the Shanghai index slumped more than 11 percent last week but it seemed to do little to help revive the market as investors expected more supportive measures.
On Tuesday the index, for the first time in more than a year, dropped below the 3,000 level briefly before bouncing back to positive territory at close.
"In recent weeks, expectations have been mounting for the government to take decisive steps to prop up the domestic markets," Jing Ulrich, chairwoman of China equities at JPMorgan Chase & Co, said. "The lowering of stamp duty is one of the most aggressive steps the government could have taken to improve sentiment."
The stamp duty was cut to 0.1 percent from 0.3 percent effective yesterday.
"Clearly brokerage stocks are the best performers on expectations that the lower stock trading tax will boost transactions," said Wang Antian, a Guohai Securities analyst.
Citic Securities Co surged 10 percent to 32.13 yuan while Haitong Securities Co jumped 10 percent to 39.03 yuan.
PetroChina Co, the largest weighting in the index, advanced 9.87 percent to 18.15 yuan.