SHANGHAI (AFP) - Chinese share prices recovered opening losses to close the Wednesday morning session 0.25 percent higher after tumbling 8.84 percent Tuesday, their biggest one day fall in 10 years, dealers said.
"The market saw some renewed follow-through selling following a small technical rebound right after the opening," said Cao Yan, an analyst at Soochow Securities. "It seems that most investors are not as panicked as yesterday." The benchmark Shanghai Composite Index, which covers A and B-shares closed the morning session up 6.88 points at 2,778.67.
The stock market has climbed more than 130 percent over the last 12 months, prompting regulators to repeatedly warn that share prices were far ahead of themselves and many investors risked losing their money if the bubble burst.
Lu Fangxing, an analyst with Chinalion Securities based in Shenzhen, said Tuesday's rout was more likely the result of overzealous selling after one major institution cashed out its holdings.
"Clearly this was a sell off from institutional selling," said Lu, adding that he believed the downward trend was unlikely to last long.
Analysts have also said panic selling set in late Tuesday partly due to fears over the upcoming launch of index futures and rumours that the government will start levying taxes on capital gains made on stock investments.
According to state press, in an effort to calm anxieties the Ministry of Finance and the State Administration of Taxation announced Wednesday that there are no plans to levy such a tax.
Tuesday's fall saw more than 800 companies, or about two-thirds of listings, close down by their daily limits of 10 percent -- blamed by some analysts for causing world markets to fall sharply in the following hours.
Global stock markets saw a sharp sell-off overnight amid weak economic data in the US and fears of a US economic slowdown. Some said there were fears that the Chinese economy would feel the pinch.
"There is a mechanism on the A-shares market which caps single-day upward or downward movement of stocks to 10 percent," said Eugene Law, head of research at Celestial Asia Securities Holdings in Hong Kong.
"Since many A-shares dropped over 10 percent yesterday, scores of investors were unable to sell down their holdings and they will likely do so today."
Despite the rebound in China, shares across Asia-Pacific continued to fall Wednesday morning, with investors digesting the ramifications of Tuesday's fall in Shanghai and then the slump on Wall Street overnight.
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