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Chinese stock market fell but ended well off its lows on Tuesday, as hopes for government support helped banks and property shares rebound from a sharp early slide. The Shanghai Composite Index, which had dropped as much as 4.64 percent in the morning, closed down 0.73 percent at 2,157.839 points. On Monday, it tumbled 5.23 percent.
Falling Shanghai stocks outnumbered gainers by 504 to 388, while turnover in Shanghai A shares was a moderate 47.0 billion yuan ($6.9 billion) against Monday's 47.2 billion yuan.
Bank shares bounced on Tuesday after Industrial & Commercial Bank of China and other top banks sank in early trade to near levels where government investment fund Central Huijin is believed to have bought them late last month, as part of an official rescue plan for the market. This prompted speculation that Central Huijin might soon resume buying. ICBC closed 2.21 percent higher at 4.15 yuan, after falling as low as 3.87 yuan. Investors think the government may soon take further steps to aid the market and the economy, possibly including monetary and fiscal easing.
The central bank unexpectedly allowed the yield on its one-year bills to fall nearly 10 basis points at auction on Tuesday, in what money market traders took as a sign that interest rates might be cut as soon as this week. This helped to boost real estate developers, with Vanke climbing 4.78 percent to 6.57 yuan.
The Chinese market was also supported by a general rebound in emerging Asian stock markets on Tuesday after a surprisingly large interest rate cut by Australia's central bank raised hopes that other countries would follow suit. Monday's tumble of US crude oil futures to an eight-month low boosted airlines, with China Eastern up 6.42 percent to 4.63 yuan, and oil refiner Sinopec, which rose 1.80 percent to 10.19 yuan.
But analysts said the market would remain vulnerable to a fresh slide unless equities stabilised overseas and investors regained some confidence in the outlook for the global economy. "Banks' recovery today is positive, but the market can't rally much with overseas markets in such a state," said Zhou Lin at Huatai Securities.

Copyright Reuters, 2008

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