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Chinese Stocks Surge After Trading Tax Cut

April 24 (Bloomberg) -- China's stocks surged, sending the Shanghai Composite Index to its biggest gain in more than six years, after the government cut a tax on equity trading to stem a slump that has erased $1.7 trillion from the country's shares.

The tax reduction was the latest in a series of measures to boost stocks and comes two days after the Shanghai index slumped more than 50 percent from its Oct. 16 record. Stocks had fallen on concern earnings growth will slow and new additional share sales will overwhelm demand.

``The government is clearly concerned about the meltdown,'' said James Liu, Shanghai-based deputy chief investment officer at APS Asset Management, which oversees $1 billion including yuan-denominated A shares. ``It's positive for the market in the short run.''

Citic Securities Co., the nation's biggest brokerage, gained on speculation the stock market rally will boost trading income. China Life Insurance Co., the nation's biggest insurer, climbed on optimism gains from equity investments will increase.

The Shanghai Composite Index surged 239.07, or 7.3 percent, to 3,517.4 at the 11:30 a.m. local-time break. It earlier climbed 9.6 percent, the most since Oct. 23, 2001. Just two of the 888 stocks on the gauge declined today. The Shenzhen Composite Index rose 7.2 percent to 1,029.37.

The CSI 300 Index, a measure of shares traded on both exchanges, climbed 261.94, or 7.6 percent, to 3,715.67. All of its 10 industry groups rose, led by financial companies. The gauge tumbled as much as 39 percent this year, making it the second-worst performing benchmark in the world after Vietnam.

`Most Aggressive'

The duty on stock trading was reduced to 0.1 percent from 0.3 percent effective today, the government said in a statement on its Web site after the close of trading yesterday.

In December, China tripled to $30 billion the amount overseas institutions are allowed to invest in yuan-denominated stocks and bonds. Two months later, securities regulators ended a five-month freeze on new mutual funds. The regulator on April 20 required shareholders looking to sell more than 1 percent of a stock to do so in single trades, to keep the transactions off the open market.

``In recent weeks, expectations have been mounting on the government to take decisive steps to prop up the domestic markets,'' Jing Ulrich, Hong Kong-based chairwoman of China equities at JPMorgan Chase & Co., said in an e-mail. ``The lowering of stamp duty is among the most aggressive steps the government could have taken to improve sentiment.''

Citic Securities jumped 2.67 yuan, or 9.1 percent, to 32.13. Haitong Securities Co., the country's second-largest listed brokerage, added 3.55 yuan, or the 10 percent limit, to 39.03.

More Stock Declines?

China Life gained 2.99 yuan, or 10 percent, to 32.87. Ping An Insurance (Group) Co., China's second-biggest insurer, rose 5.99 yuan, or 9.9 percent, to 66.70. China Pacific Insurance (Group) Co., the third largest, advanced 2.49 yuan, or 10 percent, to 27.35.

``The cut in trading tax shows a clear plan by the authorities to come out with a suite of measures to maintain the stability of the stock market,'' Zhao Jianxing and Wang Jingjing, Shenzhen-based analysts at China Merchants Securities Co., wrote in a note today. ``We believe that future policy measures will concentrate on regulating secondary fundraisings and restricting the sale of shares emerging from lock-ups.''

This year's declines in stocks may not be over as higher input costs and slowing earnings growth are likely to continue dogging the market, said APS's Liu.

Chinese consumer prices rose 8.3 percent in March as food costs jumped and after the worst snowstorms in half a century destroyed crops and paralyzed transport. Price caps on fuel and electricity have hurt earnings at refiners and power companies as crude oil traded near records.

``There are still concerns about the growth of the economy,'' said Liu. ``We've seen analysts revising down their forecasts because of rising input costs and weak external demand.''