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SHANGHAI - Chinese share prices jumped 1.04 percent for another record finish Monday as investors shrugged off the central bank's latest efforts to cool the economy and stocks, using early losses as a bargain-hunting opportunity instead, dealers said.
They said prices opened down more than 3.0 percent but the key index was soon back in positive territory as investors discounted Friday's moves as more of the same measures that have failed to work since early 2006.
"(The market rise) is not surprising because if you look back at the previous two times the central bank announced interest rate hikes, the market closed up both times," said Zeng Bo, an analyst at Changjiang Securities.
"Investors do not make that big a deal of interest rate changes any more."
The People's Bank of China said Friday it would raise benchmark one-year lending rates by 0.18 percentage points to 6.57 percent and the deposit rate by 0.27 percentage points to 3.06 percent.
The larger increase in deposit rates showed regulators wanted to cool off the nation's sizzling stock markets by mopping up some of the massive liquidity sloshing around China's financial system.
The central bank said it was aiming to ensure "reasonable growth" in investments and to keep prices stable.
China's stock markets are red-hot. The main Shanghai Composite Index has trebled since the start of 2006, prompting repeated warnings from officials and analysts that a dangerous bubble has formed.
In addition, to slow the pace of lending, the central bank said it would hike commercial bank reserve requirements -- the money they must set aside to cover emergencies -- by 0.5 percentage points to 11.5 percent.
Friday's was the fourth interest rate hike and eighth increase in reserve requirements since the central bank ramped up efforts early last year to mop up excess cash -- all apparently to little lasting effect.
Monday's market reaction was even more startling as the central bank must have hoped a combined rate and requirement hike would restore order but analysts said there is too much money around for that to happen.
"The impact (especially on the A-share market) of measures from a single (authority) like this is likely to be short lived given the significant liquidity in the local market," said Ma Jun, analyst at Deutsche Bank in Hong Kong.
The central bank also widened the yuan's daily trading band against the dollar to 0.5 percent either way from 0.3 percent but this was seen as related to soothing US critics of Beijing ahead of economic talks this week in Washington.
Analysts said a faster appreciation of the yuan, which the United States wants, was unlikely, with Beijing insisting the currency's rise must not cause any undue risk to a still fragile Chinese financial system.
The benchmark Shanghai Composite Index, which covers both A- and B-shares, closed up 41.97 points at 4,072.23 on heavy turnover of 209.60 billion yuan (27.22 billion dollars).
The Shanghai A-share Index added 43.78 points or 1.04 percent to 4,260.70 on turnover of 202.11 billion yuan and the Shenzhen A-share Index was up 26.53 points or 2.20 percent at 1,233.06 on turnover of 101.79 billion yuan.
The yuan ended the day at a new high of 7.6650 against the US dollar, up from a previous finish of 7.6680.
"People had expected the central bank to raise interest rates for a long time so it did not affect investors' buying enthusiasm much and gains Friday on Wall Street also helped," Xu Ming, an analyst at Shiji Investment, said.
"The policy moves ... are positive but very small steps along China's long march towards monetary policy normalization because these measures are unlikely to truly address the overheating pressures in the broad economy or in China's asset market," said Goldman Sachs analyst Liang Hong.
Dealers also noted that the hard-currency B-share markets, set up originally to allow foreign investors access and long since disregarded in favour of the main A-shares, also enjoyed another record breaking day in very heavy trade.
The Shanghai B-share Index was up 4.98 points or 1.38 percent at a record 365.65 on turnover of 7.49 billion US dollars and the Shenzhen B-share Index rose 3.05 points or 0.41 percent at 748.32 on turnover of 2.40 billion Hong Kong dollars (310.48 million US dollars).
In the Shanghai A-share market, real estate developers were supported by the rising yuan and hopes for further appreciation on the widening of the daily trading band, dealers said.
Lander Real Estate was up 0.93 yuan or 8.92 percent at 11.36 and Poly Real Estate Group added 2.20 yuan or 6.40 percent at 36.55.
Banks struggled after the interest rate rise which hurts their interest margins and so earnings. Bank of Communications was down 0.14 yuan or 1.02 percent at 13.55 and China Merchants Bank shed 0.30 yuan or 1.45 percent at 20.46. – AFP/ir
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