Equities get lift from reserve cut, IPO approvals

The benchmark Shanghai Composite Index rose 1.08 percent to 2,052.53 points, with turnover rising to 65.4 billion yuan from 55.1 billion yuan on Monday. Information technology, electronics and financial companies led the rally.

However, some analysts cautioned that the rebound in the stock market isn't sustainable.

"The market has gone through downward corrections earlier and recently got a moderate boost from some positive news, such as the targeted reserve ratio cuts. But the foundation of an overall economic recovery is not so solid, given that the HSBC Holdings Plc final Purchasing Managers Index reading was lower than the flash reading in May and that imports declined in the month," said a report by Shenyin Wanguo Securities Co Ltd on Tuesday.

The People's Bank of China, the central bank, on Monday announced targeted cuts in banks' reserve requirement ratios, a move intended to support small companies and agriculture.

"It is not a large-scale [reserve cut], so the impact on the real economy will be limited. But it is a signal of the monetary stance, so it will be positive in supporting the stock index in the short term. The rebound won't be too strong, considering the macroeconomic situation at this stage," Yang said.

A report from Bank of America Merrill Lynch on Tuesday said the expansion of the targeted ratio cuts may raise hopes of an upcoming cut across the board, but the chance of such an aggressive move "could be quite small in the near term".

Premier Li Keqiang is determined to break away from the past mode of policy easing by rolling out "targeted stimulus measures" that emphasize fiscal spending by the central government, reducing funding costs, especially for small borrowers, attracting private capital and easing outdated restrictions in the property market, the report said.

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