The rally came after investment bank JPMorgan issued a report saying China's leaders are considering a stimulus plan of up to $58.4 billion including tax cuts and measures to stabilize the financial markets and boost the housing industry. Investors used the news as an excuse to hunt bargains after recent losses that had taken the markets to 20 month lows. "The market has been pacing up and down at low levels for a long time. Investors have all been waiting for a chance," said An Yun, a strategist at Shenyin Wanguo Securities in Shanghai. Among other measures planned, the report said, the government would raise prices for electricity and fuel shortly after the Olympics, which end Sunday in Beijing. Seemingly corroborating that claim, the government announced late Tuesday that it was raising electricity tariffs for the second time in two months, with wholesale power prices rising about 5%, on top of a 4.7% increase in July. The move is meant to help utilities offset high coal costs, which had squeezed electricity generators in recent months and spawned power outages and rationing.
Coal stocks have run dangerously low at many power plants recently because utilities have balked at paying current high market prices. Power generators advanced on the news, with Shenhua Energy adding 8.7% to 28.76 yuan and Huaneng Power International up 0.8 percent to 7.50 yuan. Among other major gainers, PetroChina, which accounts for the biggest chunk of the Shanghai benchmark, advanced 6.2 percent to 14.23 yuan, China Life Insurance added 9.3 percent to 25.41 and Tongling Nonferrous Metals gained 10 percent to 9.37 yuan. Some analysts were skeptical over the sustainability of the rebound given the prevailing pessimism over the economic outlook and persisting worries over an oversupply of shares in the market.
"The market should rebound but I don't think it means a return to a bull market in just one day, since there aren't any actual policies being announced," said Zhai Peng, an analyst at Guotai Junan Securities in Shanghai. "Once again, the investors have lost their heads," he said.
In currency dealings, the US dollar was trading at 6.8541 yuan around 0800 GMT on the over-the-counter market, down from Tuesday's close of 6.8599.