China's stocks shoot up on PBOC move

Updated: 2011-12-01 13:51


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BEIJING - China's stocks extended rallies after a strong opening in the morning trade on Thursday after the country's central bank cut bank reserve requirements for the first time since 2008.

The benchmark Shanghai Composite Index shot up by 3.35 percent after opening more than 2 percent higher to 2,411.53 at midday, erasing the tumble of 3.3 percent on Wednesday which was the most since Aug 8.

Then Shenzhen Component Index ended the morning session at 10,047.60, up 3.65 percent.

Financial and non-ferrous metal stocks led the rally. China Life surged 9.17 percent to 18.70 yuan ($2.93) and Industrial and Commercial Bank of China gained 2.39 percent to 4.29 yuan.

Tongling Nonferrous Metals Group rose by the daily limit of 10 percent to 20.26 yuan. Jiangxi Copper Co jumped 7.53 percent to 26.71 yuan.

Property stocks were also robust, with China Vanke up 6.66 percent and Poly Real Estate Group up 8.58 percent.

The People's Bank of China, or the central bank, said Wednesday evening that it will lower banks' reserve requirement ratio (RRR) by 50 basis points as of Dec 5.

The latest cut drops the RRR to 21 percent for large commercial banks and 17.5 percent for mid- and small-sized banks. An estimated 396 billion yuan ($62.38 billion) in capital will be released into the market.

The move signals that the government is worried about weakening economic growth, although it is not known if the move will lead to a generally looser monetary policy, analysts said.

The Shanghai Composite Index lost about 5.5 percent in November on concerns of a slowdown in the world's second largest economy and escalating European debt crisis.

China's purchasing managers index, the gauge of China's manufacturing activity, fell to 49 percent in November, indicating a contraction for the first time since February 2009. A reading below 50 indicates contraction while a reading above 50 indicates expansion.

"While facing volatile external demands and both eased economic growth and inflation, the RRR cut is a signal for stabilizing growth, making the central bank's fine-tuning of the country's monetary policy more explicit," said Zhuang Jian, a senior economist with the Asia Development Bank, after the announcement of the RRR reduction.

China's move, coupled with six other central banks' coordinated action to pump liquidity into the global financial system, excited global markets.

The US Federal Reserve, the European Central bank and the central banks of Canada, Switzerland, Japan and the UK agreed to lower the cost of dollar swap lines by 50 basis points.

Stocks in Hong Kong, Japan and South Korea also rallied in the morning after the joint central bank action.