An investor monitors price changes at a securities house in Yichang, Hubei province. The Shanghai Composite Index rose 0.72 percent to close at 3116.98 yesterday.

The short-lived rebound of Chinese share prices yesterday, which later gave way to profit-taking pressure, has indicated investors' concerns about market fundamentals.

The benchmark Shanghai Composite Index shot up by more than 200 points, or 6.8 percent, shortly after opening in response to overnight news of new block trading rules that are widely viewed as government measures to revive the dispirited market.

But persistent selling by profit-takers dragged the index down to close at 3,116.98 points, up a mere 0.72 percent from last Friday.

Gainers outnumbered losers by 464 to 379. The Shenzhen Component Index fell 1.75 percent, or 197.71 points, to close at 11094.33.

The turnover on the two bourses amounted to 115 billion yuan, up 47.4 percent from last Friday. Total capitalization increased 0.4 percent to 20.04 trillion yuan.

The China Securities Regulatory Commission late Sunday night announced new rules requiring shareholders to sell stocks on the block trading system if they expect to sell more than 1 percent of a listed firm's total shares within a month.

Analysts said the new rules would lift investors' sentiment in the short term, but the real impact would be short-lived, because many uncertainties still surround China's macroeconomic future, such as inflationary pressure.

"The move should minimize investors' concerns about sudden drains of market liquidity through the sale of large amounts of unlocked shares," TX Investment Consulting Co Ltd analyst Wu Feng said.

Jing Zhizhong, an analyst at China Merchants Securities Co Ltd, said: "The restriction could slow the speed of share sales and shows a change in the government's attitude towards the market."

About 15 trillion yuan in non-tradable A shares would become tradable over the next two years - nearly double the current number.

However, some analysts said supplementary rules of the sales restriction would soon be released to explain the details, because the restrictions would have otherwise been issued in vain.

"The most frequent traders using the block trading system are institutional investors," said Cheng Weiqing, an analyst at CITIC Securities. "The deal is expected to be difficult to complete, because the market still lacks margin trading."

Wu at TX Investment Consulting agreed, saying: "The possibility for investors who received the shares through the block trading system to sell them in the secondary stock market can't be ruled out. If it is not stipulated clearly, the new restriction will be useless."

Analysts expected the government would soon issue additional positive measures to manage the stock market, including a stamp tax cut.

Financial stocks led yesterday's rally. Haitong Securities surged 7.54 percent to close at 33.66 yuan, while Industrial and Commercial Bank of China jumped 4.17 percent, and CITIC Securities rose 3.99 percent.

"Investors should pay greater attention to stocks in non-ferrous, transportation, steel, financial and manufacturing sectors, which had fallen sharply this year," Cheng said.

(China Daily April 22, 2008)