An investor smiles in front of an electronic board showing stock information at a brokerage house in Tianjin municipality April 24, 2008. China's main stock index soared over 9 percent in frenzied trade on Thursday after the government cut the share trading tax, seeking to boost investors' confidence.(Photo: Chinadaily.cmn.cn) Photo Gallery>>>

    BEIJING, April 24 (Xinhua) -- The overnight announcement of a cut in share trading taxes drove Chinese stocks 9.29 percent higher in soaring turnover on Thursday, with the key Shanghai Composite Index up 304 points to 3,583.03, the largest gain since Oct. 23, 2001, when daily limits were introduced.

    The policy change, which slashed the stamp tax from 0.3 percent to 0.1 percent effective immediately, was announced two days after the benchmark index had fallen to half its peak of October 2007.

    The Shenzhen Component Index jumped 9.59 percent to 12,914.76 points.

    Combined turnover hit 263 billion yuan (37.57 billion U.S. dollars), twice that of Wednesday. In Shanghai, volume was 191.7 billion yuan, the most since the beginning of this year.

    Turnover on the two bourses swiftly reached some 123.48 billion yuan in the first hour of trading on Thursday, a record high.

    Only two stocks fell, and more than 1,000 rose by the 10-percent daily limit.

    The long-awaited tax cut is a clear signal of the government's determination to bolster the fragile market, said Wang Junqing, analyst with Guosen Securities. Market sentiment was likely to recover with lower transaction costs, he said.

    The tax cut was the most aggressive move thus far of several measures. On April 20, regulators announced curbs on the sale of non-tradable shares that come out of lock-up periods.

    The move will address concerns over a flood of shares coming into the secondary market, which could "put constant pressure on stock prices and distort the price formation mechanism," the China Securities Regulatory Commission said.

    The Shanghai index rose 4.15 percent to 3,278.33 on Wednesday, ahead of the tax cut announcement, but was still down 37.7 percent this year and 46 percent from its peak on Oct.16.

    "The market has seen the bubbles removed and is worth investing in at current price levels, while scope for future rebounds will depend upon macro-economic performance," said Galaxy Securities analyst Li Feng.

    Meanwhile, analysts said investors should remain cool-headed and risk-averse amid drastic fluctuations.

    "Investors need to take a sensible attitude as the [tax cut] policy was actually aimed at adjusting the psychology of investors," Guosen Securities analyst Lin Songli said, warning that policy adjustments might make the market more volatile.