Chinese shares closed up 1.05 percent on Thursday, off early highs as fears about a global economic recession countered an initial rally over Beijing's aggressive interest rate cut, dealers said. Shares opened up more than six percent after the central bank announced the reduction in interest rates on Wednesday in a signal that it would pull out all the stops to boost weakening economic growth, traders said.
The benchmark one-year lending and deposit rates were both reduced from Thursday by 108 basis points, compared with the usual 27 basis points in Chinese rate cuts. But early euphoria faded soon after the open as concerns about a global recession resurfaced, prompting some investors to cash in immediate profits, dealers said.
"Some institutional investors took profits right after stocks surged at the open, because it will take a long time for the rate cuts to translate into better corporate earnings," Huatai Securities' Chen Huiqin told Dow Jones Newswires. The benchmark Shanghai Composite Index, which covers A and B shares, closed up 19.98 points at 1,917.86 on turnover of 84.0 billion yuan (12.1 billion dollars).
The Shanghai A-share index added 19.98 points, or 1.05 percent, to 1,917.86 on turnover of 83.6 billion yuan, while the Shenzhen A-share index rose 9.48 points, or 1.68 percent, to 572.33 on turnover of 38.4 billion yuan. The yuan closed the day at 6.8280 against the US dollar, up from Wednesday's finish of 6.8287.
Property developers rallied in early trade on hopes lower interest rates would help the sector plagued by overcapacity and withering demand. "The stronger-than-expected rate cut can significantly lower companies' borrowing costs and help boost domestic consumption," Deng Hongguang, an analyst at Orient Securities, told Dow Jones Newswires.
China Vanke, the country's biggest real estate developer by market value, closed up 3.1 percent at 7.01 yuan, after briefly hitting the 10 percent daily upside trading limit. Poly Real Estate rose 1.0 percent to 17.56 yuan after going limit-up earlier.
Steelmakers continued to climb on hopes they will benefit from a multi-billion-dollar stimulus plan announced by Beijing this month. Baoshan Iron and Steel rose 2.2 percent to 5.13 yuan, off its high of 5.43 yuan. Wuhan Iron and Steel rose 1.7 percent to 5.97 yuan following a 9.9 percent surge at the open. Airlines rose after China Southern Airlines said its parent received a three billion yuan subsidy from the government.
Air China jumped 6.1 percent to 4.15 yuan while Shanghai Airlines rose 3.3 percent to 4.12 yuan. China Southern Airlines was suspended from trading. The Shanghai B-share Index added 1.19 points, or 1.12 percent, to 107.82, while the Shenzhen B-share Index rose 5.46 points, or 2.20 percent, to 253.08.