Rate Cut Drives China Shares Higher, but Profit-taking Pares Morning Gains

Chinese equities opened sharply higher on Thursday in response to an unusually large cut in domestic interest rates, but they gave up some of their gains as profit-takers pared the indices back during the morning session.

The benchmark Shanghai Composite Index finished the morning session at 1,972.82 points, up 3.95 percent or 74.94 points. The Shenzhen Component Index rose 4.74 percent, or 309.49 points, to 6,843.36.

But although stocks were off their highs at mid-day, only five of more than 1,700 issues were lower.

Shares jumped at the opening in response to an unusually large interest rate cut of 1.08 percentage points announced by the central bank after the market closed on Wednesday.

The Shanghai index jumped 6.05 percent at the opening, with Shenzhen shares up 5.96 percent, before easing.

Property developers, cement and steel producers led the gains. The real estate sector was up nearly 7 percent during the morning and 26 companies, including Gemdale, Chixia Development and Suning Universal, jumped by the 10 percent daily limit.

China Vanke, the country's largest publicly traded real estate firm, jumped 7.79 percent in the morning session to 7.33 yuan.

Analysts said the real estate industry was set to benefit most from the bigger-than-expected interest rate cut.

The People's Bank of China (PBOC, central bank) said on Wednesday that it would cut the benchmark one-year lending rate to 5.58 percent from 6.66 percent and the one-year deposit rate to 2.52 percent from 3.60 percent.

The easing was aimed at "ensuring ample liquidity in the banking system and promoting stable credit growth to allow monetary policy to play an active role in supporting economic growth," the PBOC said in a statement.

It was the fourth interest rate cut since mid-September. It also was the largest cut since October 1997, when the PBOC slashed the one-year rate by 1.44 percentage points to support growth amid the Asian financial crisis.

The PBOC also said as of Dec. 5, it would lower the reserve requirement ratio by 1 percentage point at large banks and 2 percentage points at other banks.

Large lenders are Industrial and Commercial Bank of China, Agricultural Bank of China, Bank of China, China Construction Bank, Bank of Communications and Postal Savings Bank of China.