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PBOC stokes stock rebound in mainland

Mainland stocks rebounded to record highs yesterday, lifted by remarks by People's Bank of China governor Zhou Xiaochuan and the head of the national pension fund, Xiang Huaicheng.

Their comments failed to buoy the Hong Kong market, which fell on fears of a possible 'dramatic contraction' in the mainland markets as former United States Federal Reserve chairman Alan Greenspan warned on Thursday.

The Shanghai Composite Index shed 0.96 per cent in early trading before bouncing back to end 0.69 per cent higher at a record 4,179.776 points. The Shenzhen Composite Index gained 1.63 per cent to 1,234.998 points, also a record.

The Shanghai B-Share Index, which dropped almost 7 per cent in morning trading, swung back to close for a two-week-high 8.76 per cent gain, snapping a three-day, 19 per cent fall. All 47 B shares listed on the Shanghai market rose, with 40 climbing their 10 per cent daily limits.

Investors cheered Mr Zhou's remarks that the government had to assess the economic situation further before deciding on imposing additional austerity measures.

'We already have some tightening policies, so we are not hurrying to make any further - it takes time to look at the feedback,' Mr Zhou told Reuters after meeting US lawmakers on Capitol Hill on Thursday.

The People's Bank on May 18 raised its one-year deposit interest rate 27 basis points and its one-year lending rate 18 basis points. It lifted banks' reserve requirement ratio 50 basis points and widened the yuan's daily trading band against the US dollar to 0.5 per cent from 0.3 per cent set in 2005.

The market, which fell slightly on Thursday after Mr Greenspan's remarks, was also calmed by National Social Security Fund chairman Mr Xiang, who said in Hong Kong a bubble 'is not a bad thing' as long as investors were well aware of the risks.

Mr Xiang yesterday said the fund, which earned a 7 per cent return or 20 billion yuan in the first four months of this year, would be more conservative but that it would be unwise to sell stocks in the rising market.

His comment contradicted that of the pension fund's vice-chairman Gao Xiqing, who said last month the fund would sell some equities for fear the market might tumble.

The Hong Kong market, which closed for a holiday on Thursday, was shaken by Mr Greenspan's warning and global sell-offs on Thursday, especially in the US. The Hang Seng Index slid 1.34 per cent in its biggest loss since April 19. The H-share index fell 2.06 per cent.

Despite a big rise in new US home sales and durable-goods orders for a third month, investors believed the Fed was unlikely to cut interest rates this year given the resilient economy, said Kenny Tang Sing-hing, an associate director at Tung Tai Securities.

The negative rate outlook hit the S&P 500 Index, which fell 0.97 per cent on Thursday, and the FTSE-100 Index, which dipped 0.77 per cent.