Chinese shares jump on hopes of share sale

China shares closed 2.8 percent higher on Monday after mutual funds bought into large-caps on optimism about government support for the market after the unveiling an expanded scheme to sell off state-held shares.
Top steel mill Baoshan Iron and Steel Co Ltd and Three Gorges Dam operator Yangtze Electric Power Co Ltd will anchor a second batch of 42 firms chosen to quicken the plan to offload non-traded government holdings of stock in listed firms.
To sweeten the programme, some firms will subsidise public holders with cash and bonus shares while others will issue warrants or cancel some state shares to boost the value of their stock, state media reported on Monday.
"Many investors are expecting those companies to kick off favourable share sale schemes," said Zhang Yong, an analyst at Shanghai Securities.
To appease public stockholders, Beijing has suggested a raft of sweeteners, including offers of cash and bonus shares and a 12-month moratorium on the listing of state shares.
The benchmark Shanghai composite index finished at 1,115.620 points, its highest close since June 9.
Fund buying boosted big counters and thus cheered the market on Monday, traders said.
Wuhan Iron and Steel Co Ltd, China's third-largest steel maker, was the second-most active counter, rising 3.5 percent to 3.86 yuan.
China Merchants Bank Co Ltd, the country's top listed lender, was also active, gaining 5.6 percent to 6.19 yuan.
The key index, however, is still down 12 percent since the start of this year, as concerns over a possible liquidity crunch on the heels of Beijing's revived attempt to sell more than $200 billion in state shares on the bourses linger.
"The health of the stock market now hinges on the detailed share sale plans to be unveiled by the 42 firms," Zhang said.
Government-held shares, the legacy of a centrally planned economy, comprise two-thirds of market capitalisation and have weighed on bourses for years.
In 2004, the index dropped 15 percent, marking itself the world's worst major performer, hit by over-abundant stock offers, government ordered credit curbs and corporate scandals.
On Monday, China United Telecommunications Corp Ltd, the smaller of the country's two cellular carriers, was the most active stock. It climbed 2.3 percent to 2.70 yuan.