Chinese shares soar after transaction tax cut

Chinese shares soared early today after the government cut a tax on stock transactions in a move widely seen as a signal of support for the markets.

The benchmark Shanghai Composite Index surged as much as 9.6% to 3,593.2 in morning trade as investors resumed buying after weeks of holding back in hopes of market boosting news. It later dropped back to 3515.6, up 7.2%.

The jump came after the government announced late yesterday that it was cutting a stamp tax on share transactions to 0.1% from 0.3%, reversing a move it made May 30 – when it was seeking to cool surging stock prices.

The measure, which took effect today, was approved by the State Council, Finance Ministry and State Administration of Taxation, the official Xinhua News Agency reported.

The Shanghai market has been hit hard recently, dropping to levels last seen in March 2007.

“In recent weeks, expectations have been mounting on the government to take decisive steps to prop up the domestic markets,” Jing Ulrich, chairwoman of China equities for JPMorgan Chase & Co.

“The lowering of stamp duty ... is among the most aggressive steps the government could have taken to improve sentiment,” Ms Ulrich wrote in a research note.