Shanghai's key stock index surged as much as 9.6 percent during morning trading today after the government cut a tax on equity trading to bolster the world's second-worst performing market so far this year.

The Shanghai Composite Index, which tracks yuan-denominated A shares and hard-currency B shares, jumped 7.29 percent, or 239.06 points, to 3,517.40 at 11:30am.

The index, the world's second-worst performer after Vietnam this year, has dropped nearly half from its peak of 6,092.06 points since October 16. It dipped below 3,000 points during intraday trading on Tuesday.

Gainers in the Shanghai market outnumbered losers 786 to 57, while 11 were unchanged.

The Shenzhen Composite Index, which covers the mainland's smaller stock market, was up 7.20 percent, or 69.16 points, to 1029.37.

The central government last night decided to prune the stamp duty on stocks from 0.3 percent to 0.1 percent, effective today, and enacted two rules to tighten securities management.

The State Council also passed in principle draft rules on the supervision and risk management of securities companies yesterday in a meeting presided over by Premier Wen Jiabao.

The moves were engineered to restore investor confidence and bolster the beleaguered domestic stock market.

The Shanghai market showed strong positive response and jumped 7.98 percent when it opened at 9:30am this morning.

PetroChina, the biggest heavyweight in the market, boosted 7.75 percent to 17.80 yuan (US$2.55). Citic Securities Co, the nation's biggest brokerage, gained the daily cap of 10 percent to 32.13 yuan. China Life Insurance Co, the nation's biggest insurer, also climbed 10 percent to 32.87 yuan.

Qiu Yanying, an analyst at TX Investment Consulting Co, told Xinhua news agency that the stamp-duty move showed the government's desire to see a stable market.

"Confidence in recovery is more important than fund injections," said Qiu. "After earlier panics and irrational selling amid a breakdown in confidence, it is hard for a market to return to normal."

Before the stamp duty was cut, the China Securities Regulatory Commission on Sunday ruled that big shareholders who want to sell more than one percent of a listed firm's total stocks within a month must conduct the disposal through a block system.

The block trading mechanism regulation requires that sellers of equities must reach specific arrangements with buyers on a deal-by-deal basis, which won't affect trading and stock prices on the secondary market.

However, despite these combined policies issued by the authorities, investors confidence may still be shadowed by corporate earnings reports that show slowing growth for 2008.

Besides, increasing pressure from the country's rising consumer product index may also push the government to keep a "tight monetary policy" to curb inflation and prevent the economy from being overheated.

(Shanghai Daily April 24, 2008)