Mainland stocks rose yesterday, fuelled by the substantial interest rate reduction Beijing announced on Wednesday, but the gain narrowed later in the day as investors who remained worried about corporate earnings cashed out before the market closed.
The Shanghai Composite Index opened 6.05 per cent higher and shortly hit the intraday high of 2,022.483, up 6.57 per cent from Wednesday's close. However, the index then retreated and closed up only 1.05 per cent or 19.977 points at 1,917.861.
'The interest rate cut should be a big stimulus to the market,' said Morgan Stanley strategist Allen Gui. 'But few people want to spend additional money to buy stocks amid the bearish sentiment.'
Despite several recent government measures, such as a reduction in stamp duty, the stock market has barely reacted, as investors expect corporate earnings to fall over the next few quarters as a result of the deepening global financial crisis.
The 1.08 percentage point cuts of deposit and lending rates after the market close on Wednesday would save listed firms excluding banks a combined 27.4 billion yuan, according to Shanghai-based data provider Wind Information.
However, the rate reduction was inadequate to help the market shrug off the gloomy sentiment, analysts said.
'The sell-off in the afternoon showed many investors are still desperate to cash out, as they bet that a correction will set in soon,' said Dazhong Insurance fund manager Wu Kan. 'Skittish investors would keep dumping shares in the coming days.'