Chinese shares rebounded on Tuesday with the benchmark Shanghai Composite Index up 1.94 percent, ending a decline over two consecutive trading sessions.

Analysts said the rebound came after the government raised the investment ceiling of insurers in domestic stock markets from five to ten percent of their assets at the end of last year.

The move allows insurance firms to invest up to 200 billion (US$ 26.4 billion) in the domestic equity markets as their total assets reached 1.97 trillion yuan at the end of 2006.

The key Shanghai index, which covers both A and B shares listed on the Shanghai Stock Exchange, climbed 74.27 points to finish at 3,896.19. It traded between 3,919.78 points and 3,767.22 points. On Monday the key index fell 2.36 percent to finish at 3,821.92 points.

The Shenzhen Component Index on the smaller Shenzhen Stock Exchange rose 3.48 percent, or 428.79 points, to 12,759.98.

The Hushen 300 Index reflecting the performance of China's two stock exchanges closed at 3,789.65 points, up 2.48 percent, or 91.69 points, from the previous close.

More than 1,300 of the 1,500-plus stocks on the two bourses rose on Tuesday.

Analysts, however, said the rebound did not indicate a full recovery in investor confidence as the turnover was still relatively small compared with its record high levels.

The combined turnover of the two bourses stood at 95.97 billion yuan (US$ 12.7 billion), slightly higher than 91.5 billion yuan on Monday, but still sharply lower than the average daily level of 200 billion yuan in May.

Analysts said the turnover expanded because more than two trillion yuan frozen by four initial public offerings, including Bank of Nanjing and Bank of Ningbo, was freed up on Tuesday.

Real estate firms and banks led the advance. China Vanke, the nation's largest listed property firm, rose by the daily limit of ten percent to 22.62 yuan.

Shenzhen Development Bank gained 9.79 percent to 29.15 yuan after it announced on Tuesday that its first-half net income is forecast to grow up145 percent over the same period last year.

The Industrial and Commercial Bank of China rose 2.47 percent to 5.4 yuan, and the Bank of China climbed 1.99 percent to 5.13 yuan.

China Life, the country's largest life insurer, edged up 0.26 percent to 46.98 yuan after regulators doubled its investment cap on domestic stock markets. Ping An Insurance, however, slid 0.27 percent to 81.97 yuan.

Petrochemicals, third generation mobile communication and telecom sectors were also among the day's big gainers.

The China Petroleum and Chemical Corporation, Asia's largest oil refiner, was up 1.02 percent to 12.84 yuan. China Unicom, the country's second largest wireless operator, jumped 2.77 percent to 5.93 yuan.

The share prices dropped over the past two trading sessions amid speculation of further cooling measures after the release of the widely estimated overheated economic data for the first half of the year on Thursday.

Investors should be wary of a slump following the rebound in the short term as the government was likely to introduce further macro-control measures after the economic data release, according to Yinhua Investment.

Investors started to lose enthusiasm in the Chinese stock market since the government raised the stamp tax for stock trading on May 29.

Investors opened 66,100 A share accounts on Friday, the second consecutive day when the number of new accounts opened daily was below 70,000, the China Securities Depository and Clearing Co. Ltd. announced on Monday. The number was over 300,000 at its peak.

Economist Wu Xiaoqiu, of the People's University of China, suggested the tax be charged on one side of the stock transaction rather than on two sides to restore investor confidence.

The A share index on the Shanghai Stock Exchange rose 1.94 percent to 4,087.51 points and the B share index on the same market climbed 1.78 percent to 274.49 points.

The A share index on the Shenzhen Stock Exchange soared 3.48 percent to 13,446.08 points and the B share index went up 1.89 percent to 5,791.84 points.

(Xinhua News Agency July 18 2007)