Chinese stocks rose yesterday, as an unprecedented series of support measures unleashed by Beijing brought some relief to a market whose headlong slide over the past three weeks had raised fears about the stability of the world’s second-biggest economy.

In an extraordinary weekend of policy moves, brokerages and fund managers vowed to buy massive amounts of stocks, helped by China’s state-backed margin finance company, which in turn would be aided by a direct line of liquidity from the central bank.

The CSI300 index of the largest listed companies in Shanghai and Shenzhen closed up 2.9 per cent, while the Shanghai Composite Index gained 2.4 per cent.

That represented a significant pullback, however, from an initial burst of euphoria that pushed both indexes up around eight per cent when trading began, raising questions about whether the rebound can be sustained.

Oliver Barron, China policy research analyst at NSBO, said it wasn’t just faith in the markets at stake after investors had ignored official measures to prop up equities as indexes slid around 12 per cent last week.

“After the market continued to fall despite myriad support measures, the government reached peak panic mode and must have worried that investors would not only lose confidence in the markets, but in the government itself,” he said.

The rapid decline of China’s previously booming stock market, which by the end of last week had fallen around 30 per cent from a mid-June peak, had become a major headache for President Xi Jinping and China’s top leaders, who were already struggling to avert a sharper economic slowdown.

In response, China has orchestrated a halt to new share issues, with dozens of firms scrapping their IPO plans in separate but similarly worded statements over the weekend, in a tactic authorities have used before to support markets.

Recent falls in commodity markets, which are sensitive to expectations of Chinese demand, underline the broader fears among global investors about the strength of the economy.

Shanghai copper posted its steepest daily drop in five months yesterday, Chinese steel prices are at their lowest level since the depths of the global financial crisis and iron ore has fallen 17 per cent since mid-June.

China stocks had more than doubled over the past year, despite a cooling economy and weakening corporate earnings, resulting in a market that even China’s bullish securities regulators eventually admitted had become too frothy.

But the slide that began in mid-June quickly showed signs of getting out of hand.

A surprise interest-rate cut by the central bank at the end of June, relaxations in margin trading and other “stability measures” did little to calm investors, many of whom have borrowed heavily to play the stock market.

Analysts cautioned, however, that the latest policy moves may only bring short-term respite.

“The government measures are only aimed at stabilising the market, and providing an exit for those who want to get out,” said Liu Li, analyst at Shanxi Securities Co.

“Theoretically, the central bank’s money is unlimited, but you cannot expect the government to use public money to buy shares which are still expensive, such as ChiNext shares.”

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