China shares rally; securities regulator under investigation

By Pete Sweeney and Donny Kwok

SHANGHAI/HONG KONG (Reuters) - The assistant chairman of China's securities regulator is under investigation for suspected "serious violation of discipline", the country's graft watchdog said on Wednesday, using the euphemism applied to corruption.

The watchdog did not give details, and it was not immediately clear whether the investigation into the official, Zhang Yujun, was related to recent stock market falls.

Zhang is the first senior official from the China Securities Regulatory Commission (CSRC) to be investigated amid the market turmoil. Share prices began to tumble in mid-June, since when they have lost around 40 percent of their value.

Sources told Reuters last week that the ruling Communist Party had begun seeking an eventual replacement for the head of the CSRC, Xiao Gang, who faces internal criticism over his handling of market volatility.

Wild fluctuations in Chinese equities have unnerved policy makers in Beijing, who introduced a slew of measures to restore stability, and also reflect concerns that the world's second largest economy will miss projected growth of 7 percent this year.

SOME RESPITE

There was some respite on markets on Wednesday, with Chinese shares jumping about 5 percent on a flurry of buying just before the close helping to erase much of the losses earlier this week.

The late rally included shares in CITIC Securities <6030.HK> <600030.SS>, China's biggest brokerage, which said late on Tuesday that some of its senior managers were under police investigation as part of a probe into possible market manipulation.

A last-minute spike in trade pulled up China's key equity indexes, a phenomenon markets generally interpret as government intervention to push up values before the closing bell.

Beijing has called on its so-called "national team" of state-linked banks, funds and brokerages to buy up shares.

Regulators have also tightened control over stock exchanges and currency markets to quell volatility and root out those behind what they have called "malicious" trading.

In the latest regulatory move, China took aim at the country's commodity exchanges, spooked that speculators have shifted from stocks to futures trading in the likes of iron ore and rubber.

CITIC is a core part of the "national team", but has also become embroiled in Chinese authorities' probes into whether market malpractices have contributed to the plunge in stock prices.

The brokerage said on Tuesday that three company officials, including its general manager, Cheng Boming, were being investigated for alleged insider trading and leaking information.

Cheng is one of the most senior financial executives known to have been caught up in the probes so far. He forms part of the seven-member executive committee overseeing China's flagship investment bank, the country's largest broker by market capitalization.

State media have previously reported that four senior CITIC executives confessed to insider dealing in August. Apart from confirming that Cheng and two other officials were being investigated, CITIC has declined to comment.

SMALL-CAP BOUNCE

CITIC has spent the past three years trying to boost its overseas presence and expand into asset management and complex derivatives. In 2012 it paid $1.3 billion for the Asia-focused brokerage CLSA and has also established brokerage units in several overseas markets including the United States.

The brokerage booked a net profit of 11.3 billion yuan ($1.77 billion) in 2014 with revenues of 39.5 billion.

CITIC's Hong Kong-listed shares dropped more than 4 percent in early trading on Wednesday, but reduced those losses to close 0.7 percent lower. Its Shanghai-listed shares jumped 6.95 percent higher.

More broadly, Chinese stocks on Wednesday enjoyed their biggest single-day percentage gain since Aug. 27.

The benchmark CSI300 index <.CSI300> of the biggest listed stocks in Shanghai and Shenzhen finished up 4.98 percent while the Shanghai Composite Index <.SSEC> rose 4.91 percent. In Hong Kong, the Hang Seng <.HSI> closed up 2.38 percent.

The jump comes after stocks fell 6 percent over Monday and Tuesday, raising fears that a significant slide was on the cards.

Small-cap stocks, which took the brunt of the selling at the start of the week, posted the day's biggest gains, with the CSI300 IT Index <.CSI300IT> up more than 9 percent. More than 1,000 stocks ended at the 10-percent limit-up threshold.

Traded volumes remained relatively light, though, with many investors opting to stay on the sidelines given persistent concerns about China's economy and the possibility of an interest rate hike in the United States.

(Additional reporting by Engen Tham; Writing by Rachel Armstrong and Mike Collett-White; Editing by Neil Fullick and Ian Geoghegan)

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