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Chinese government intervenes to halt $5 trillion market rout


China's the Shanghai Composite Index lost 1.3%. (AP)

China's the Shanghai Composite Index lost 1.3%. (AP)

China's the Shanghai Composite Index lost 1.3%. (AP)

China's government intervened in the stock market yesterday to end a $5 trillion (€4.4 trillion) rout, according to people familiar with the matter.

China wants to stabilise equities before a September 3 military parade celebrating the 70th anniversary of the victory over Japan during World War II, said the people, who asked not to be identified.

The intervention is the latest measure to ensure nothing detracts from the parade, an event the government will use to demonstrate its rising military and political might.

The Shanghai Composite Index swung from a loss of 0.7pc to rally 5.3pc in the last hour of trading, ending its steepest five-day rout since 1996.

The government bought large-company stocks, according to one of the people.

A gauge of 50-day volatility on the Shanghai Composite surged to its highest level since 1997 this week amid signs the government had pulled back from rescue measures to support the world's second-largest stock market.

Officials previously armed state agency China Securities Finance with more than $400bn to purchase shares.

The authorities shouldn't withdraw stabilisation efforts as equity trading has yet to return to normal, according to a front-page commentary on the Securities Daily.

The government halted intervention in the equity market earlier in the week as policy makers debated the merits of an unprecedented rescue, according to people familiar with the situation.

Stocks failed to sustain gains on Wednesday after the central bank cut interest rates and reduced the amount of required reserves for banks.

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The index tumbled 42pc from its mid-June peak through Wednesday as margin traders closed out bullish bets and concern also deepened that valuations are unjustified by the weak economic outlook. (Bloomberg)

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