The key mainland stock index yesterday soared 9.29 percent, the biggest one-day jump in six years, as investor sentiment was boosted by the government lowering of stamp duty.

The slashing of trading tax from 0.3 percent to 0.1 percent, effective yesterday, was widely seen as another government effort to lift the stock market from the doldrums it has been in for six months.

It followed the introduction of trading rules last Sunday to mitigate the impact of an expected flood of previously non-tradable shares after the lock-in period, which could greatly depress the market.

The Shanghai Composite Index yesterday surged 304.7 points to close at 3583.03.

In yesterday's trading, gainers outnumbered losers by 853 to 1. The Shenzhen Component index jumped 9.59 percent, or 1130.61 points to close at 12914.76. Total market capitalization swelled 9.2 percent to 22.94 trillion yuan ($3.3 trillion).

Turnover on the two bourses more than doubled from the day before to 261 billion yuan ($37 billion), the highest this year.

Analysts said the reduction in the stamp duty and restrictions on the sale of unlocked shares showed that the market has fallen as low as the government would like to see.

"The timing of the stamp duty cut suggests that the 3000 point may be a psychological bottom line for policymakers," said Peng Cheng, an economist at Citi China.

"The government had been patient in waiting until the market correction was more than 50 percent before taking action," Peng added.

Xu Wei, an analyst at Sinolink Securities, estimated that the cut in stamp duty saves investors up to 102 billion yuan ($14.7 billion) a year.

In addition, "the relatively lower A-share valuation and the more stable performance of overseas stock markets have combined to help investors regain confidence," said Rui Kun, a fund manager at China international Fund Management Co Ltd.

Security companies, especially those focusing on brokerage services, will benefit from the increasingly active trading because of the stamp tax cut, analysts said.

Shanghai-based Haitong Securities, Sinolink Securities and Guoyuan Securities soared to the daily limit of 10 percent.

However, some market insiders said that weak fundamentals and unfavorable China economic growth data are likely to outweigh the positive impact of the government move, and the rebound may not last long.

"It is doubtful that such administrative measures can have a sustained effect on shares when earnings face significant challenges in the periods ahead," said Peng at Citi China.

"The cumulative effect of tightening policies and rising input costs, along with shrinking demand, could cut profits more deeply than what is currently evident," Peng added.

(China Daily April 25, 2008)