Shanghai shares close up nearly 5%, extending gains

Shanghai, August 28

Shanghai stocks closed up 4.82 per cent on Friday, rising for a second day on strong US growth figures and a global market rally, amid speculation the government is also supporting the market, dealers said.

China's benchmark Shanghai Composite Index surged 148.76 points to 3,232.35 on turnover of 474.6 billion yuan (USD 74.2 billion). Despite two days of substantial gains, the index still lost 7.85 per cent for the week.

The Shenzhen Composite Index, which tracks stocks on China's second exchange, soared 5.40 per cent, or 94.62 points, to 1,846.83 on turnover of 425.0 billion yuan. It fell 9.44 per cent over the week.

Dealers said a mixture of positive news boosted the markets, including a Chinese interest rate cut and stronger-than-expected US growth figures for the second quarter, which helped global markets to rally on Thursday.

China on Tuesday cut interest rates for the fifth time since November and reduced the amount of money banks must keep on hand in a bid to stimulate expansion, prompting widespread rallies, even though analysts say more action is needed.

The US economy grew much stronger than expected in the second quarter, expanding at an annual rate of 3.7 per cent, official data showed Thursday.

"It's not one single factor pushing the market up," Zheshang Securities analyst Zhang Yanbing told AFP. "Several factors are working together, such as the rate cut and the local debt swap programme, and the rises in global markets."   

The Chinese government has expanded a programme that allows local governments to issue bonds to refinance debt, according to state media.

"At least the earlier scare over heavy falls is gone for now," Zhang added.

Global markets were roiled earlier this week on the potential impact of slowing growth in the Chinese economy, the world's second-largest.

"After the massive correction earlier in the week, investors are apparently starting to realise that the drop was overdone," Gerry Alfonso, a Shanghai-based trader at Shenwan Hongyuan Group, told Bloomberg News.

"There is a lot of talk of state-linked funds purchasing stocks and helping the market," he added.

China launched a rescue package for shares after a year-long rally collapsed in June, which has included funding the China Securities Finance Corp. to buy stocks on behalf of the government.

Trading on Chinese stock markets has been highly volatile for weeks, with Shanghai now down nearly 40 percent since a year-long, debt-fuelled rally collapsed two months ago. — AFP