China's main stock index closed up 2.69 percent on Monday, after surging more than 3 percent on news at the weekend that China would require government approval for large sales of state-held shares in listed firms. The Shanghai Composite Index closed at 3,883.216 points, off an intraday high of 3,900.904 but extending Friday's 4.58 percent rebound.
Analysts were optimistic that the market would continue its upward trend. "The index should be able to rise to the 4,200 level, but it may have difficulty supporting itself when it approaches the record around 4,300 points," said Cao Xuefeng, analyst at West China Securities.
He added that the index would probably not rebound as quickly as it did last month, when it rose from a recent low of 3,404 points to a high of 4,312 in just 12 trading days. Chinese official media reported on Saturday that the government would limit sales of state-held shares to less than 5 percent of a company's total capital over three years, unless approved by the state.
The policy may ease uncertainty and bolster stability in the stock market, analysts said, as the government aims to ease fears that state-held shares could flood the market and depress prices after a reform scheme that permitted their sale.
Share supply worries were also heightened by accelerated approvals of new initial public offerings, while plans to issue 1.55 trillion yuan ($204 billion) in special bonds raised concerns that liquidity will be drained from the capital markets.
Beijing, hoping to boost the institutional investor base to absorb new shares, is poised to give approval soon to at least three new stock-oriented mutual funds expected to raise a combined 30 billion yuan, industry sources said on Monday.
Analysts believe the market's recovery at the end of last week, which followed a drop of more than 7 percent on Wednesday and Thursday, points to a reversal of the latest downward trend which began in mid-June.
"Investors are a little more optimistic and confident after the index was able to avoid getting near last month's low," said Chen Jinren, analyst at Huatai Securities. Official figures showed the number of new A-share trading accounts opened on Friday rose to 74,870 from Thursday's 62,953, suggesting that investors were regaining confidence.
Gaining Shanghai stocks overwhelmed losers by 851 to 21, while 32 A shares rose their daily limit of 10 percent. Turnover in Shanghai A shares was at 98.1 billion yuan ($13 billion), up from Friday's relatively thin 91 billion yuan, indicating more investors were trading after Friday's recovery.
All major sectors were up, led by financials. China Life Insurance, which contributed most to the index's rise, was up 5.35 percent at 44.12 yuan. Merchants Bank gained 6.68 percent to 25.87 yuan on news that its plan to acquire 34 percent of shares in China Merchants Fund would soon be approved by regulators. Some companies scored gains on expectations of good earnings in their mid-year reports.
Steel firm Nanchang Changli Steel Co jumped its daily limit of 10 percent to 8.05 yuan, a record high, after it announced on Monday that its 2007 first-half earnings would rise more than 800 percent from the same period last year.
Carmaker Shanghai Automotive Co also rose its daily limit of 10 percent to a record high of 20.12 yuan on news that it expected first-half profits to increase by more than 300 percent from its earnings during the same period last year.
Shenzhen-listed Yuan Long Ping High-Tech Agriculture Co fell 4.46 percent to 19.08 yuan after a unit of French agriculture company Vilmorin & Cie agreed to buy a 46.5 percent stake in the Chinese company's parent.