Shanghai stocks surged more than 9 per cent yesterday after a government cut in stamp tax, aimed at ending a bear market where share prices halved in six months.

Investors responded with enthusiasm, assuming that the authorities want to halt the rout before the Beijing Olympics in August and to put a floor under the benchmark Shanghai Composite Index at about 3,000 points.

The reduction in the stamp tax, to 0.1 per cent from 0.3 per cent, reversed an increase imposed last May to take the steam out of what was then a wildly bullish market.

It will make little difference to the investment costs of all but the most active traders, but it had an immediate psychological impact.

Jing Ulrich, chairwoman of China equities for JPMorgan Chase, said: “The lowering of stamp duty is among the most aggressive steps the Government could have taken to improve sentiment.”

The index closed 9.29 per cent higher at 3,583 points, its biggest rise since October 2001. Most Shanghai shares rose by their 10 per cent daily limit and turnover more than doubled to 188.5 billion yuan (£13.6 billion), reaching levels not seen since last year's frenzied speculation.

The market soared more than sixfold between June 2005 and last October's record peak, but then plunged 51 per cent to a 13-month low of 2,990 points on Tuesday because of rising inflation, tightening monetary policy and heavy supplies of new equity.

Regulators acted late on Sunday to staunch the flow of new shares on to the market by setting restrictions on the sale of large blocks of shares newly freed from lock-up periods.

Despite the help from the Government, concerns about the health of the economy are likely to linger. The global credit crunch is far from resolved, the outlook for profits is darkening and the central bank has made it clear that it remains more concerned by inflation than faltering growth.

Zhang Qi, an analyst at Haitong Securities, said: “The market is unlikely to see the mad and bold speculation that we had last year. Investors have really learned a lesson.”

Explore Industry Sectors

• Banking & Finance

• Construction & Property

• Consumer Goods

• Engineering

• Health

• Industrials

• Leisure

• Media

• Natural Resources

• Retailing

• Support Services

• Technology

• Telecoms

• Transport

• Utilities

Times Recommends

• Bovis and Redrow axe close to 1,000 jobs
• Irate M&S shareholders demand fresh talks
• Investors rally to B&B amid fears of contagion