SHANGHAI – Chinese shares rallied early Monday after a week-long holiday, buoyed by a pre-holiday announcement by Beijing that will free up more funds for banks to lend to small businesses to support the world's second-largest economy.
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The benchmark Shanghai Composite Index is now up 1.1% at 3386.76, off its intraday high of 3410.17 at the open. The less influential Shenzhen Composite Index also gained 1.1%, while the ChiNext startup board on the Shenzhen bourse is up 0.8%.
In a surprise move, China's central bank announced on the eve of the week-long National Day holiday that began Oct. 1 that it will cut the reserve requirement ratio for banks that provide loans to certain small firms and individual business people.
The credit-easing move, which the authorities say will be implemented next year, is expected to unleash 300 billion yuan ($45.15 billion) into the financial system and boost banks' earnings.
"It's all about the reserve requirement cut. Of course, China's stock market also needs to catch up with the gains in global markets during the past week," said Zhang Gang, senior analyst at Central China Securities.
Also, Chinese authorities will ensure that financial markets remain steady before the Communist Party kicks off a major congress on Oct. 18, a top-level gathering that happens once every five years which is expected to usher in a new leadership squad under President Xi Jinping, analysts say.
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However, in a carefully orchestrated move, the People's Bank of China said earlier Monday that it will suspend its daily money market operation, a decision that will effectively drain CNY160 billion worth of funds from the financial system. This is because the same amount of short-term loans from the central bank to commercial lenders are due to mature Monday.
"This shows that we shouldn't interpret the latest reserve requirement reduction as all-out monetary easing because the central bank still needs to tackle problems like high debt and financial leverage," Mr. Zhang said.
As a result, Chinese bonds remain under pressure, with the yield on the 10-year government paper up 0.02 percentage point at 3.64%.
The Chinese currency, the yuan, is largely steady against the dollar at CNY6.6428 in onshore trading.
-- Write to Shen Hong at firstname.lastname@example.org
(END) Dow Jones Newswires
October 08, 2017 22:54 ET (02:54 GMT)