The government announced on Sunday that the prices of gasoline and jet fuel were down by 220 yuan and 90 yuan per ton, respectively, after international crude oil prices tumbled to a 19-month low.

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"The move will raise investor confidence in all those listed oil-consuming companies," said Zhang Liyang, an analyst at Changjiang Securitites.

He added the price reduction will lower cost and boost profits to companies like China Shipping Haisheng and SAIC Motor.

The Shanghai Composite Index rose 4.74 percent to close at 1,795 points yesterday with stocks in nearly all oil-related companies showing increases. SAIC Motor and Xingma Motor jumped to the daily allowable limit.

Companies in oil sectors gradually recovered from a price plunge last week that came on weakness in international oil prices. China Petroleum & Chemical Corp (Sinopec) climbed 3.23 percent yesterday with a small correction after dropping 14.34 percent since last Wednesday.

"The price cut will benefit some oil-consuming listed companies in the long term, though the scale of cut is small," said Ma Ying, an analyst at Haitong Securities. "The government will probably cut the fuel price again if the international oil prices continue the downward trend."

Fund companies said the move would not affect their sentiment on oil-producing companies like Sinopec.

"The gain in the chemical business of Sinopec is expected to cover their loss in oil business caused by the price cut, " said Liu Shiqiang, an analyst at Huotai Fund Management.

The price cut, the second in five years, ties domestic prices more closely to international prices. Zhang said a meeting would be held by the National Development and Reform Commission at the end of this month to discuss the price mechanism for refined fuel oil.

(China Daily 01/16/2007 page14)

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