Seeing the risk of a bubble on the stock market bursting, the central bank of China announced a three-pronged measure on 18 May 2007 after markets closed:

1. the central bank raised interest rates (for the fourth time in a year)

2. it also ordered banks to set aside more reserves, thus reducing the money supply for lending. The rate on a commercial one-year loan rose 0.18 percent to 6.57 percent.

3. broaden the daily trading range of the yuan against the U.S. dollar which could lead to a faster appreciation of the yuan.

So the impact on the market?

When the market opened Monday, the benchmark Shanghai Composite Index was 3.2 percent down from Friday’s close but steadily regained ground, rising 1.0 percent to close at 4,072.23. So far this year, the Shanghai index has soared 52.2 percent.  That was on top of a 130% jump last year.

The Shenzhen Composite Index climbed 2.1 percent to 1,181.42.  The Hong Kong Heng Sang Index also up 22 points to close at 20927.

Looks like we will expect more policies to come to curb the stocks fever in China.