The Shanghai stock market yesterday posted its biggest daily jump since April 24, driving the benchmark to rebound past the 2,500 psychological line.
The bourse was lifted largely due to speculation that China may introduce up to 400 billion yuan (US$58.35 billion) worth of initiatives to boost the economy.
Led by the brokerage and finance sectors, China's key stock market soared 7.63 percent yesterday, boosting the total market value by about 946 billion yuan, based on Shanghai Daily's calculations from a day earlier.
Analysts agreed the unexpected rally would help restore market confidence, but the upbeat sentiment remained uncertain amid concerns of high inflation and a possible international recession.
The Shanghai Composite Index, which tracks yuan-denominated A shares and hard-currency B shares, climbed 178.8 points yesterday to close at 2,523.28. The Shenzhen Composite Index, which tracks the smaller domestic stock exchange, increased 7.16 percent, or 47.60 points, to 712.82.
Gains outnumbered losses 826 to one in Shanghai, while the trading volume more than doubled to 59 billion yuan from the previous session.
The rally came after Gong Fangxiong, the chief economist of JP Morgan Chase & Co, said in a report that China was considering a stimulus plan of up to 400 billion yuan, including tax cuts and measures to stabilize financial markets and boost the housing industry.
The report renewed market speculation about the establishment of a buffer fund to prevent irrational moves in the stock market and that a tax cut would benefit listed companies reporting smaller profits.
The top 20 blue-chip heavyweights fanned yesterday's rally with an average increase of 8.5 percent.
CITIC Securities Co, a unit of China's biggest investment company, climbed to 18.70 yuan, joined by seven other brokerages that all jumped the 10-percent daily limit.
Haitong Securities Co, the country's largest listed brokerage by market value, surged to 16.53 yuan.
PetroChina Co, the biggest oil producer, expanded 6.19 percent to 14.23 yuan, while China Merchants Bank surged 9.27 percent to 23.92 yuan.
Zhang Xiang, of Guodu Securities Co Ltd, echoed the possibility of sweeteners by the government because economic growth was slowing and there was a risk that a slump in exports in the second half of this year may worsen the situation.
He questioned a sustained market performance in the short term because of high inflation and rising energy prices.
"Boosting the economy is a gradual process, and the government should have a closer look before mapping out detailed plans," he said.
Wen Lijun, an analyst at Nanjing Securities Co Ltd, called yesterday's jump "a technical rebound."
