China stocks pare losses as banks climb on speculated support

China Construction Bank Corp. jumped 2.2 per cent to lead a rally for the nation's biggest lenders.
China Construction Bank Corp. jumped 2.2 per cent to lead a rally for the nation's biggest lenders. PHOTO: EPA

SHANGHAI (BLOOMBERG) - Chinese stocks pared losses in volatile trading as Bank of China and other large financial companies climbed following Monday's rout. Commodity producers declined.

The Shanghai Composite Index was down 1 per cent at 3,688.48 at the 11:30 a.m. break, after sinking as much as 5.1 per cent and gaining 1 per cent. About three stocks fell for each that rose. Bank of China advanced 1.5 per cent, while China Coal Energy Co. led energy shares lower.

The gauge tumbled 8.5 per cent on Monday amid concern a three-week rally sparked by unprecedented government intervention is unsustainable.

"Confidence is very weak and the market will probably still seek a lower level of support," said Wu Kan, a Shanghai- based fund manager at Dragon Life Insurance Co., which oversees about US$3.3 billion.

"Big caps like banks are rising as undoubtedly, the state funds are buying them to prop up the broader market. If the market falls to or approaches the previous low, the government will take further rescue measures."

China Construction Bank Corp. jumped 2.2 per cent to lead a rally for the nation's biggest lenders. Agricultural bank of China Ltd. added 1.2 per cent.

Chinese traders reduced leveraged stock bets on Monday by the most in two weeks as the stock plunge erased US$613 billion (S$837.6 billion) in value. The securities regulator assured investors in a statement after the market closed the government hasn't withdrawn support for equities.

Hong Kong's Hang Seng Index climbed 1.6 per cent at 11:34 a.m., after dropping to its lowest level in three weeks on Monday. The Hang Seng China Enterprises Index advanced 0.5 per cent. The CSI 300 Index retreated 0.2 per cent, paring a loss of as much as 5 per cent.

A measure of 30-day volatility in the Shanghai Composite jumped to its highest level since 1997 on Monday. Trading volumes in Hong Kong were 45 per cent above the 30-day average on Tuesday, while they were 11 per cent higher in Shanghai.

Monday's retreat shattered the sense of calm that had fallen over mainland markets last week and raised questions over the viability of government efforts to prop up share prices as the economy slows. The International Monetary Fund has urged China to eventually unwind its support measures, according to a person familiar with the matter.

China Securities Finance Corp., a state-backed agency that provides margin financing and liquidity, hasn't exited the stock market, China Securities Regulatory Commission spokesman Zhang Xiaojun said in a statement after the close of trading on Monday.

The Shanghai gauge had rebounded 16 per cent from its July 8 low through Friday as officials went to extreme lengths to halt a rout that erased US$4 trillion from the nation's equities. Officials allowed more than 1,400 companies to halt trading, banned major shareholders from selling stakes and armed a state- run financing vehicle with more than $480 billion to support the market.

Hundsun Technologies Inc., which runs a financial investment trading platform knowns as HOMS, plunged 8.6 per cent for a three-day 23 per cent loss. The company denied online speculation that HOMS's connection to brokerages will be halted after July 28 and investors will only be able to sell positions.

The outstanding balance of loans backed by share purchases fell by 21.4 billion yuan (S$4.7 billion) to 919.4 billion yuan on the Shanghai Stock Exchange on Monday, according to bourse data.