Taiwan stocks closed higher on Tuesday, bouncing from a nine-month low, as government moves to loosen regulations on foreign trading encouraged investors to come back to buy tech shares like UMC.
The TAIEX ended up 1.36 percent at 5,557.68, recouping some of the 5.1 percent it lost on Monday after China slammed President Chen Shui-bian's independence leanings just days before the May 20 inauguration to Chen's second term.
"Through the deregulation, foreign investors are expected to pour more funds into Taiwan and that's positive to the local market," said Alex Huang, assistant vice president at Barits International Securities.
Taiwan's government announced the measures on Monday to further open the island's capital markets to foreign investors, who had been big sellers of local shares recently.
The moves helped foreigner favourites like United Microelectronics Corp (UMC), the world's No 2 contract chipmaker, that jumped 2.39 percent to T$25.70 after slumping the daily seven-percent limit on Monday. Display maker Chi Mei rose 3.28 percent to T$63.00.
Compact disk maker CMC Magnetics was another major winner, up 3.11 percent at T$19.90, as the firm's stock buyback plan eased recent selling pressure that was triggered by worries over falling disk prices.
On the technical charts, Taiwan's 14-day relative strength index was in oversold territory at 27.571 on Tuesday, signalling that a technical rebound was possible.
Despite the day's rebound, market players were concerned about the impact on Taiwan's industrial sectors from China's moves to cool its overheating economy.
For example, shares in China Steel, the island's largest steel producer, slipped 1.08 percent to T$27.60 and those in Chung Shing Textile were limit-down at T$1.49.
China is stepping up efforts to rein in over-investment amid fears it is fuelling inflation, raising concerns that demand from China, Taiwan's top export market, will slow.
The over-the-counter market's TAISDAQ index fell 0.40 percent to end at 120.48, while the TAIEX May index futures contract jumped 2.99 percent to 5,518.