SHANGHAI, Sept 8 (Reuters) - Chinese stocks rose nearly 3 percent on Tuesday as a surge in late-afternoon buying helped erase early losses, but trading in both equity and index futures markets shrank sharply following a slew of government steps aimed at curbing speculative activity.
The CSI300 index of the largest listed companies in Shanghai and Shenzhen rose 2.6 percent, to 3,334.02, while the Shanghai Composite Index gained 2.9 percent, to 3,170.45 points.
However, trading in SSEC shrank to the lowest level since February, a month of traditionally thin trading due to the Chinese New Year Festival.
Late on Monday, China said it would remove tax on dividend incomes for investors who hold stocks for more than a year in an effort to encourage longer-term investment.
The announcement came hours after regulators proposed introducing a "circuit breaker" on China's flagship CSI300 index to help stabilise the market.
These moves came on top of measures Beijing already introduced to restrict trading in index futures and options.
"The authorities' move can certainly reduce the trading frequency of some big investors and help stabilize the market," said Xiao Shijun, a strategist at Guodu Securities.
However, he said that only a sustained rebound can lure new investors.
Banking shares rebounded in afternoon trade, fuelling speculation that government-backed investors intervened, according to traders.
Small-caps also bounced sharply, with Shenzhen's growth board ChiNext up 5.5 percent. (Reporting by the Shanghai Newsroom; Editing by Shri Navaratnam)