China's main stock index fell to a new 22-month closing low on Thursday, hit by the turmoil in the global financial industry, but came well off the day's lows because of a rebound in beaten-down bank shares. The Shanghai Composite Index sank more than 6.5 percent in the early afternoon to an intra-day low of 1,802.331 points.
But it finished down just 1.72 percent at 1,895.837. Turnover in Shanghai A shares expanded to a three-week high of 43.2 billion yuan ($6.3 billion) from Wednesday's 31.9 billion, though it remained small compared to levels early this year. Falling Shanghai stocks outnumbered gainers by 802 to 132.
Pudong Development Bank ended 3.97 percent higher at 13.87 yuan in its heaviest turnover since May last year, after hitting a fresh year-low of 12.71 yuan earlier in the day as bank shares sagged in response to the global financial crisis. Analysts said some Chinese mutual funds had apparently decided to buy back into banks after sharp falls this week.
There were also rumours that government-linked funds may have bought stocks in a deliberate effort to support the market, and that the government was planning further measures such as asking more controlling state shareholders in listed companies to boost their stakes through purchases in the open market.Analysts noted that the index bounced from near technical support at 1,783 points, its high in 2004. However, the index remains down nearly 9 percent so far this week, and 69 percent below last October's record peak.
"So far, this only looks like a short-term rebound and one can't say a long-term recovery is starting," said Wen Lijun, analyst at Nanjing Securities. "Investors worry that the rescue of American International Group may not work well, they worry about the banks, and they're even worried about milk producers," said Cao Xuefeng, analyst at Western Securities.
He added that the stock market could remain weak well into the fourth quarter of this year - "1,300 or 1,500 points, no one dares to name a floor now." The Chinese central bank unexpectedly let short-term interest rates in its money market operations drop on Thursday, another sign that it was easing monetary policy further after Monday's earlier-than-expected easing. But this appeared to have little immediate, positive impact on the stock market.
Insurers fell sharply on Thursday with China Life Insurance losing 4.48 percent to 18.97 yuan and Ping An Insurance sinking 8.64 percent to 30.66 yuan. The official Shanghai Securities News said on Thursday that they held no bonds linked to failed investment bank Lehman Brothers, but some investors worry that AIG's troubles may even deter consumers from buying insurance, traders said. Wednesday's sharp rebound of global oil prices hurt oil refiners, which had been strong earlier this week. Sinopec slid 2.80 percent to 9.04 yuan.