A man walks past a sign showing the closing numbers of the Taiwan Stock Exchange in Taipei yesterday. AFP

HONG KONG: Euphoria over potential influx of investments from the mainland yesterday lifted Taiwan's stock market to an 18-year high, with the key index closing up 6.74 percent.

Its exceptionally strong showing came in the wake of news that China Mobile, the world's largest wireless telecom operator, is buying a 12 percent stake in Taiwan mobile operator Far Eastone, fuelling speculations of more cross-Straits deals.

The rally was also sparked by Taiwan's announcement that it would allow mainland institutional investors to buy locally-listed stocks.

"The (liberalization) move is expected to inject more funds into the local stock and futures markets, expand market scale and improve internationalization," Taiwan's Financial Supervisory Commission said in a statement.

The benchmark weighted index jumped 378.51 points to close at 5,992.57, just a tad below its intraday high of 5,995.12.

Yesterday's 6.74-percent surge, which was the market's biggest daily percentage gain since August 1991, helped reverse an otherwise losing week, which saw losses earlier on swine flu concerns.

Investors also bought stocks in a big way following optimistic comments from the Federal Reserve on Wednesday that the US economic outlook has improved since March, which combined with some positive US data triggered a Wall Street rally on Wednesday.

Strong gains on Wall Street helped most regional bourses close sharply higher.

Trading on the Taiwan market was active, with turnover surging to NT$136.88 billion ($4.12 billion) from NT$112.5 billion ($3.3 billion) in the previous session.

Strong buying by foreign institutions contributed significantly to the hefty turnover, dealers noted.

Foreign institutions bought a net NT$32.99 billion ($997 million) worth of local stocks yesterday, the fifth-biggest daily foreign purchase on record, bringing total net purchase by foreign institutions to NT$104 billion for the month.

"The strong buying was triggered by a slew of external and internal positive factors," said Thomas Ng, investment strategist at Quam Securities Co Ltd, citing improved cross-Straits relation and favorable corporate news.

Over the weekend, the two sides have agreed to expand air links and boost mainland investment on the island.

Analysts said yesterday's activity was boosted to a large extent by news that China Mobile will acquire a stake in Far Eastone, one of the top three telecom operators on the island.

China Mobile agreed to pay NT$17.8 billion ($529 million), or a 14 percent premium, for a 12 percent stake in the Taiwan firm in what would be the first major direct investment by a mainland firm in the island over 50 years.

Far Eastone closed up by its daily maximum limit on the news.

Alex Huang, vice president of Mega International Securities, said the tie-up is a huge boost to market sentiment because it shows the beginning of a future flow of mainland investment in local companies.

Political risks have been the major reason preventing foreign investors from entering Taiwan's markets, he added.

Quam Securities' Ng is quite optimistic about the short-term prospect for the local market.

"The benchmark index definitely can break through the 250-day moving average line within a couple of trading sessions," he said.

The technically-important line, which is considered by many investors as a threshold between a bull market and a bear market, is now at around 6,060 points.

However, Yuanta Securities Investment Consulting analyst Calvin Chen is relatively cautious.

"The market had suffered heavy pressure on concerns over a swine flu outbreak. The current upside is pretty much technical," he said, adding that the benchmark index could meet resistance at the 6,000-point level.

The financial sub-index jumped 6.84 percent on hopes for mainland fund inflow, with top financial holding firm Cathay Financial surging 6.93 percent.

The electronics sub-index closed up 6.75 percent while the semiconductor sub-index rose 6.88 percent.

UMC, the world's second largest contract chipmaker, jumped limit-up after announcing a deal to acquire mainland-based chipmaker HeJian for $285 million.

TSMC surged limit-up after Japan's Fujitsu Ltd said it was in talks with the chipmaker to outsource system chip production. Minutes before the market close, TSMC reported its weakest quarterly earnings in nearly eight year due to slower demand.

Quanta, the world's largest contract notebook PC maker, rival Compal, and Hon Hai, Taiwan's biggest electronics parts maker, went limit-up after their first-quarter results beat expectations.

ASE, the world's largest chip packager, was limit-up after saying it expected second-quarter sales to rise more than 40 percent from the first quarter.

Acer, the world's third-largest computer maker, closed limit-up despite it cut growth forecasts for its low-cost netbook PCs Wednesday.

Food and beverage producer President Chain Store Corp rose 6.71 percent after a report that the firm plans to open 300 7-Eleven stores on the mainland in five years.

China Daily - Agencies

(HK Edition 05/01/2009 page2)