'Do not believe in rumours,' trumpeted a headline in the Shanghai Securities News.

It said talk of high-level government meetings to speed the plan to sell state shares was groundless, and investors should calmly assess the market's bright prospects.

The China Securities Journal echoed this line with a story saying its reporters had determined talk of an imminent sale of state shares was unfounded.

About two-thirds of shares in the mainland's 1,200 listed companies are untraded and held by the state. Investors fear that if those shares are allowed on the market, prices will tumble.

The possible sale of some of the Government's shares has repeatedly unnerved investors even though Beijing has insisted that if it sold its shareholdings it would spread out the listing of the stock over several years.

Over the seven trading days to Thursday, the Shenzhen and Shanghai A-share markets for domestic investors lost about 7 per cent of their value. But a rally was seen yesterday - much of it in the final minutes of trading.

Domestic A shares climbed 1.24 per cent to 483.64 points in Shenzhen, and rose 1.18 per cent to 1,635.63 points in Shanghai.

Shanghai's B-share index finished 0.35 per cent higher at 143.78 points, while Shenzhen's grew 0.46 per cent to 222.21 points. B shares are open to mainland and foreign investors.

'The Government just wasn't willing to see the market fall any further,' said Feng Shubiao, an analyst at Ping An Securities in Shenzhen.

He said the Government felt it had endured enough of a fall and had to step in to stop the slide. 'The market was also ready for a bit of a technical rebound,' he said.

Analysts said prices were also supported by rumours that the Government might finally announce details of a new policy that would require investors to have shares in the secondary market in order to buy stock in initial public offerings. IPOs traditionally show strong gains and those investors who are able to buy shares are usually assured of hefty profits.

A requirement that IPO investors must have a portfolio of other shares would help prop up prices on the secondary market.

Analysts said mainland share prices were being hurt by persistent talk of a qualified domestic institutional investor programme aimed at channelling funds into the Hong Kong market.

'There is one camp that wants to help Hong Kong politically and another that says it is unfair to take money from the poor mainland to help rich Hong Kong,' said an investment banker who declined to be identified.

Stocks could extend yesterday's gains next week if such a plan were unveiled, brokers said. But at some point, the huge overhang of state shares is likely to undermine sentiment once again.

'This is a time bomb. The Government should make clear whether it will reduce its shareholding,' said Yu Yang, an analyst at Guotai Junan Securities in Shenzhen.

The state share disposal was announced last April when authorities said all state-owned enterprise IPOs were required to float 10 per cent of their shares to raise money for the Social Security Fund. However, steep price declines led the China Securities Regulatory Commission to suspend the plan on October 22.