CHINA’S stocks rose yesterday, as an unprecedented series of support measures unleashed by the government brought some relief to a market whose headlong slide over the past three weeks had raised fears about the stability of the world’s second-biggest economy.

    In an extraordinary weekend of policy moves, brokerages and fund managers vowed to buy massive amounts of stocks, helped by China’s State-backed margin finance company, which in turn would be aided by a direct line of liquidity from the central bank.

    The CSI300 index of the largest listed companies in Shanghai and Shenzhen closed up 2.9 percent, while the Shanghai Composite Index gained 2.4 percent.

    That represented a significant pullback, however, from the initial burst of euphoria that had seen both indices rocket around 8 percent when trading began, raising questions about whether the rebound can be sustained.

    The rapid decline of China’s previously booming stock market, which by the end of last week had fallen around 30 percent from a mid-June peak, had become a major headache for China’s top leaders, who were already struggling to avert a sharper economic slowdown.

    In response, China has orchestrated a halt to new share issues, with dozens of firms scrapping their initial public offering (IPO) plans in separate but similarly worded statements over the weekend, in a tactic authorities have used before to support markets.

    Gains were focused on blue chips, the explicit target of the stabilization fund, particularly the big banks, with the likes of Bank of China and Agricultural Bank of China all surging nearly 10 percent.

    In contrast, the ChiNext growth board, home to some of China’s giddiest small-cap valuations, fell 4.5 percent.

    “Whether the blue chips will calm the small caps, or the small caps will continue to unsettle the rest of the market remains to be seen,” wrote Hong Hao, strategist of BOCOM International.

    China’s stocks had more than doubled over the past year, despite a cooling economy and weakening corporate earnings, resulting in a market that even China’s bullish securities regulators eventually admitted had become too frothy.

    But the slide that began in mid-June and that the China Securities Regulatory Commission initially tried to downplay as a “healthy” correction, quickly showed signs of getting out of hand.

    An interest rate cut by the central bank at the end of June, relaxations in margin trading and other “stability measures” did little to calm investors, many of whom have borrowed heavily to play the stock market.

    In a series of announcements Saturday, China’s top brokerages pledged to collectively buy at least 120 billion yuan (US$19.3 billion) of shares to help steady the market, and said they would not sell while the Shanghai Composite Index remained below 4,500, a level last seen June 25.

    In addition, 28 companies that had been approved to launch IPOs announced they had suspended their plans.

    The U-turn is consistent with past IPO freezes in China when share markets were falling sharply.

    Analysts cautioned, however, that the latest policy moves may only bring short-term respite.

    “The government measures are only aimed at stabilizing the market and providing an exit for those who want to get out,” said Liu Li, analyst at Shanxi Securities Co.

    “Theoretically, the central bank’s money is unlimited, but you cannot expect the government to use public money to buy shares that are still expensive, such as ChiNext shares.”

    (SD-Agencies)