Shanghai stocks close up 1.23% in volatile trading

Shanghai stocks closed up 1.23 percent on Wednesday, erasing a more than five percent plunge in morning trade on expectations of fresh government support for the market, dealers said.

The benchmark Shanghai Composite Index added 45.95 points to 3,794.11 on turnover of 599.5 billion yuan ($93.7 billion).

It fell as much as 5.06 percent and rose up to 1.69 percent during the day in a see-saw session, after dropping more than six percent on Tuesday, the biggest fall in three weeks.

The Shenzhen Composite Index, which tracks stocks on China's second exchange, rose 2.19 percent, or 47.63 points, to 2,222.05 on turnover of 547.1 billion yuan.

Chinese shares have been highly volatile in recent months, plunging almost a third in a matter of weeks in June, after having risen more than 150 percent in the preceding year.

After the collapse, the government intervened with a rescue package that included funding the state-backed China Securities Finance Corp. (CSF) to buy stocks on behalf of the government.

"The market recovered from heavy losses in the morning after yesterday's plunge -- only the 'national team'... would be able to turn the tide like this," Yingda Securities analyst Li Daxiao told AFP, referring to entities acting for the government.

"State forces or measures are the main forces supporting the market right now."

Other government steps introduced to support the market include barring "big" investors from selling their stakes and cracking down on short-selling -- when investors bet prices will go lower.

Last Friday, the market regulator said the CSF would continue to stabilise the stock market for a number of years, though it added that will only occur during times of volatility.

Sentiment remains weak in Shanghai, with persistent worries over the weak economy and the fallout from a surprise devaluation of China's yuan currency last week.

"The market expects the government will step in if the Shanghai Composite falls towards 3,500 (points), but more and more people in the mainland see that the bull market is over," Mari Oshidari, a Hong Kong-based strategist at Okasan Securities Group, told Bloomberg News.

"With weak sentiment we will continue to see unstable moves in the market."

Investors hope Beijing will further loosen monetary policy by cutting interest rates or lowering the proportion of funds banks must hold -- the reserve requirement ratio (RRR) -- which would be positive for the stock market.

Authorities have already reduced benchmark interest rates four times since November and have also lowered the RRR three times in a bid to stimulate the stalling economy.

"The market is still looking forward to further loosening of monetary policy in the second half of the year," Zhang Gang, an analyst at Central China Securities, told AFP.

Securities firms rose in Shanghai. China Merchant Securities gained 1.99 percent to 20.53 yuan and Citic Securities rose 1.43 percent to 20.61 yuan.

Shanghai-listed Hundsun Technologies surged by its 10 percent daily limit to 71.61 yuan despite confirming a regulatory investigation, reportedly over margin trading. The company also said that the CSF and another state-backed firm, Central Huijin Investment, now hold stakes in it.