Shares of Chinese banks rally after Huijin purchase

Shares of China's banks rallied Central Huijin Investment Ltd started buying shares in the four major State-owned banks.

But analysts said that the small increase in the benchmark Shanghai exchange index will not extend into a long-term rally. They said that it was only a short-term rebound in the A-share market, which fell to a 30-month low of 2,344.79 on Monday.

Industrial and Commercial Bank of China Ltd gained 1.5 percent in Shanghai, the most in six weeks. China Construction Bank Corp, Agricultural Bank of China Ltd and Bank of China Ltd all climbed more than 2 percent

The four banks did better in Hong Kong, where they are also listed, with ABC jumping 12 percent and the other three rising at least 5.8 percent.

Central Huijin Investment Ltd, set up to hold government stakes in the banks, raised its holdings in the big four banks in the secondary market on Monday after the banks' valuations dropped below the level hit during the financial crisis in 2008.

Central Huijin said it will continue with "related market operations" over the next 12 months. But it didn't say how much it will invest and whether it will buy the shares in Hong Kong or Shanghai.

"The move by Central Huijin is a signal that the government has decided to take measures to prop up the stock market," said Wang Jianhui, chief economist with Southwest Securities Co Ltd. "But the effect will be limited because what investors worry most about are the fundamentals of the Chinese and global economies, which have not shown signs of improving."

Xu Guangfu, an analyst with Xiangcai Securities Co Ltd, was more optimistic. He estimated that the rally would continue for as long as two months, with the index increasing 200 to 300 points.

An analyst with a major foreign investment bank in Shanghai, who declined to be identified, interpreted Central Huijin's purchase as a move to raise its ownership, motivated by concern that the banks' repeated offerings will dilute its holdings.