CHINESE stocks reversed sharp declines and ended higher yesterday after the central bank injected more funds into the financial system for a second day in a bid to calm panicky markets.

    The Shanghai Composite Index ended up 1.23 percent at 3,794.11 and the Shenzhen Composite Index gained 2.19 percent to 2,222.05.

    The move by the People’s Bank of China helped offset fears that the government is considering scaling back its massive rescue effort for the country’s stock market, which it put in place just last month.

    The Shanghai Composite slumped more than 5 percent at one point in morning trade, after plunging more than 6 percent Tuesday following comments by China’s securities regulator that the market has normalized and the government would allow market forces to play a bigger role in determining stock prices.

    But some analysts said the correction was overdone.

    “The regulator’s announcement referred to a decrease in the buying rate rather than any sales of holdings, which would seem to indicate that investors are once more overreacting,” wrote Gerry Alfonso, director of Shenwan Hongyuan Securities Co.

    Indeed, some investors took advantage of the slump to buy relatively cheaper shares, triggering a late-afternoon rebound.

    The market was also encouraged by news that the central bank would offer selected banks new medium-term lending facility loans in a bid to offset tightened liquidity conditions following the sharp devaluation of the yuan last week.

    On Tuesday, the central bank injected 120 billion yuan (US$18.77 billion) into the money markets through seven-day reverse bond repurchase agreements. It was the largest injection since the week of Feb. 9. (SD-Agencies)