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People's Daily Online>>China Business

China's stocks open Dec. with big gains on central bank move

(Xinhua)

11:06, December 01, 2011

BEIJING, Dec. 1 (Xinhua) -- China's stocks shot up on the first day of December after the PBOC cut bank reserve requirements for the first time since 2008.

The benchmark Shanghai Composite Index was up 2.53 percent, or 59.07 points, to open at 2,392.49. The rebound came after the index tumbled 3.3 percent on Wednesday, the most since Aug. 8.

Then Shenzhen Component Index opened at 9,976.52, up 2.92 percent.

Stocks of nonferrous metal and banks led the rally.

The People's Bank of China, or the central bank, said Wednesday evening that it will lower banks' reserve requirement ratio (RRR) by 50 basis points as of Dec. 5.

The latest cut drops the RRR to 21 percent for large commercial banks and 17.5 percent for mid- and small-sized banks. An estimated 396 billion yuan (62.38 billion U.S. dollars) in capital will be released into the market.

The move signals that the government is worried about weakening economic growth, although it is not known if the move will lead to a generally looser monetary policy, analysts said.

The Shanghai Composite Index lost about 5.5 percent in November on concerns of a slowdown in the world's second largest economy and escalating European debt crisis.

China's purchasing managers index, the gauge of China's manufacturing activity, fell to 49 percent in November, indicating a contraction for the first time since February 2009. A reading below 50 indicates contraction while a reading above 50 indicates expansion.

"While facing volatile external demands and both eased economic growth and inflation, the RRR cut is a signal for stabilizing growth, making the central bank's fine-tuning of the country's monetary policy more explicit," said Zhuang Jian, a senior economist with the Asia Development Bank, after the announcement of the RRR reduction.

China's move, coupled with six other central banks' coordinated action to pump liquidity into the global financial system, excited global markets.

The U.S. Federal Reserve, the European Central bank and the central banks of Canada, Switzerland, Japan and the U.K. agreed to lower the cost of dollar swap lines by 50 basis points.

Stocks in Hong Kong, Japan and South Korea also rallied in the morning after the joint central bank action.

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