Late afternoon buying on rumors the government was considering raising fuel oil prices reversed the stock market's slide, pushing the Shanghai benchmark index up 2.93 percent.

PetroChina, which had been languishing for most of the day, jumped 6.63 percent in the last hour before closing at 17.86 yuan apiece, while Sinopec shares surged 10 percent, the daily limit, to 12.55 yuan.

The benchmark Shanghai Composite Index climbed 101.02 points to close at 3544.19. Turnover on the Shanghai bourse reached 99 billion yuan, up 9.14 percent from the previous trading day.

Following the previous trading day's decline, the Shanghai market yesterday opened 37.38 points down, with the index dropping to as low as 3355.08 at one point in early trading. Stockbrokers said the rumor-instigated buying wave, concentrated on the oil counters, was surprisingly strong.

"Rumors that the government is considering raising oil product prices appeared to have fired up many investors who made a last-minute dash to place their buy orders," Shanghai-based Changjiang Securities analyst Zhang Fan said.

Analysts said the rumors were triggered by sharp increases in international crude prices, viewed as adding stress to China's fuel price control mechanism.

Crude oil prices have soared an aggregate 5 percent in the international market over the past two weeks. The most actively traded crude oil contract for delivery in July on the New York Mercantile Exchange hit $129.37 per barrel, a record high, in yesterday's electric trading.

Analysts said rocketing crude oil prices have increased oil refiners' costs and squeezed their profits, as government price restrictions prevented refiners from passing increased costs on to end consumers.

"The sharp price rise of PetroChina, the most heavily weighted stock in the mainland stock market, has helped drive up shares in other sectors, including steel and real estate," CITIC China Securities analyst Zhang Xiaojun said.

The government hasn't yet commented on the rumors.

Analysts said any rumor-driven market rally wouldn't likely last at a time when economic prospects are clouded by uncertainties arising from a weak global economy, a depreciating US dollar, and globally rising inflation fueled by escalating energy and food prices.

(China Daily May 22, 2008)