INVESTORS in China will no longer have to pay a stamp duty when they buy shares, a state initiative to provide a boost to the nation's flagging stock markets roiled further by global financial turmoil.

From today, investors will pay the 0.1 percent tax only when they sell shares, according to a notice from the Ministry of Finance and the State Administration of Taxation issued late yesterday.

Meanwhile, a government investment arm plans to buy shares in three major state-owned banks to boost their share prices, which have plunged following the announcement that investment bank Lehman Brothers filed for bankruptcy.

Qian Qimin, an analyst at Shenyin Wanguo Securities described the stamp-tax cut as "a major positive" move that should have an immediate upward effect on the market.

"This is a clear signal that the government is acting to stabilize the market, and more measures may follow," Qian said.

The benchmark Shanghai Composite Index lost 1.72 percent to 1,895.84 yesterday, extending this year's loss to 64 percent.

Regulators have used adjustments in stamp-tax duties to help spur or cool demand for stocks. It tripled the tax in May last year which triggered a major slide in the stock market.

The tax on both buying and selling stocks was lowered to 0.1 percent from 0.3 percent in April.

"The government's intention is clear," said Song Songxing, a professor at Nanjing University. "As investors no longer have to pay the tax on purchases, this means authorities are encouraging long-term investments."

In another measure announced after the market closed yesterday, the Central Huijin Investment Co, a unit of the Chinese sovereign wealth fund, will buy equity stakes in three state lenders.

Central Huijin started to buy the shares of the Industrial and Commercial Bank of China, the Bank of China and the China Construction Bank yesterday. The move was to show the government's interest in the three lenders, to support the steady operation of major state-owned financial institutions and to stabilize their share prices.

"The decision was important for a stable operation of the capital market," a China Securities Regulatory Commission spokesman told the Xinhua news agency.

Some analysts expect the Shanghai index to fly today and test the 3,000 level as all of these measures take effect.

Independent analyst Hou Ning remains cautious, saying the weakness in global financial markets may curb the rebound of the two markets on China's mainland.