Reply #22: China stocks end down 2.7 pct but rumours doubted

[Ghost Dog]

http://yahoo.reuters.com/news/articlehybrid.aspx?storyID=urn:newsml:reuters.com:20070601:MTFH68360_2007-06-01_07-17-12_SHA103338&type=comktNews&rpc=44

SHANGHAI, June 1 (Reuters) - China's main stock index tumbled 2.65 percent on Friday in response to rumours that the government planned to impose a stock capital gains tax or take other strong tax steps to cool the market.

The Shanghai Composite Index <.SSEC> fell as much as 3.5 percent in late trade before coming off its low to end at 4,000.742 points, its lowest finish since May 16.

Many analysts and fund managers said they thought such a tax was extremely unlikely, especially since the market had already been showing signs of cooling after a hike in the stock trading tax this week.

"It is natural that some rumours like this are swirling when market sentiment is not stable," said Zheng Weigang, senior analyst at Shanghai Securities.

"But I don't think it's true as the government just wants to cool the market, not crash it."

However, jittery individual investors began selling heavily as the rumours spread.

Three officials from the finance ministry and tax administration dismissed the rumours as mere speculation, but middle-ranking bureaucrats in China are not always privy to sensitive policy decisions.

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