China's main stock index tumbled to a fresh 19-month low on Wednesday, hit by concern that slower economic growth would hurt corporate profits, but the market bounced sharply by the close. The Shanghai Composite Index slid as much as 3.52 percent to a low of 2,370.737 points at mid-afternoon.
But it then rebounded briefly into positive territory before closing down just 0.44 percent at 2,446.297 points. Some traders noted rumours that government-backed funds might be entering the market in a deliberate effort to support stocks, although the government has so far taken little concrete action to halt a slide that has brought the index down 60 percent from last October's peak.
Most analysts attributed the rebound to scattered buying of blue chips by mutual funds after the index had lost nearly 10 percent over the three previous trading days. Thin turnover amplified the bounce, they said.
"There is no specific news in the market this afternoon," said analyst Zhou Xin at Huatai Securities in Nanjing. "The market had really fallen too much since late last week, and a mild rebound is natural. "Investor confidence remains at a low ebb, so we expect the market to stage only a mild rebound of 100 points or so."
Falling Shanghai A shares outnumbered gainers by 493 to 409, while turnover in Shanghai A shares remained very thin at 35.2 billion yuan ($5.1 billion), though it was up from Tuesday's 30.8 billion yuan, which was the lowest since November 2006.
In its latest strategy report, China International Capital Corp described a "growing consensus" that the world's economy and stock markets were in downtrends. It said global economic imbalances triggered by high inflation and the US subprime loan crisis would curb global demand for years to come.
"Long-term investors are choosing to stay away from the market because of increasing economic uncertainty, while short-term speculators are dumping shares because there are no government policies in sight to support the market," said Xu Yan, strategist at Shenyin & Wanguo Securities.
A commentary in the official People's Daily on Wednesday warned that China was facing the most severe year in its economic development. It urged efforts to address inflation and called for the continuity and stability of macroeconomic policies.
Banking stocks and other financials fell on Wednesday because of concern that a slowing economy would create more bad loans. Industrial & Commercial Bank of China, the biggest lender, dropped 2.86 percent to 4.75 yuan.