May 26, 2017 / 7:17 AM / a year ago

China stocks end week higher, state-led buying offsets Moody's downgrade

SHANGHAI, May 26 (Reuters) - China stocks reversed earlier losses to end the week higher on Friday, led by the blue-chip CSI300 index posting its best week in six months as suspected state-directed buying offset concerns over a surprise move by Moody’s to cut the country’s credit rating.

For the day, the blue-chip CSI300 index fell 0.2 percent to 3,480.43 points, while the Shanghai Composite Index added 0.1 percent to 3,110.06 points.

For the week, CSI300 advanced 2.3 percent, while the SSEC gained 0.6 percent.

Sentiment in the market earlier in the week had been depressed by lingering concerns over tightening policy and the growth outlook, with the Moody’s downgrade pushing Shanghai stocks to near seven-month lows on Wednesday morning.

But strong gains in index-heavyweight financial stocks on suspected government support lifted the market on Thursday amid growing hopes that global index provider MSCI Inc would add mainland Chinese shares to its benchmark next month.

An index tracking the country’s major lenders jumped 5.4 percent in its best week since early March, 2016.

“This is apparently a stabilisation effort by the government. The index has dropped to a very critical level,” said Wu Kan, head of equity trading at investment firm Shanshan Finance, referring to the 3,000 points - a key psychological level closely watched by many traders.

“But the state of stability could be temporary.”

State intervention in financial markets is not unheard of in China. During the market rout of mid-2015, a band of government-backed investors, dubbed the “National Team”, was ordered to try to stop the bleeding by buying stocks.

There was some speculation online that the National Team was at it again in the wake of the downgrade.

However, small-caps remained weak, with the nation’s Nasdaq-style board ChiNext dropping 2.3 percent this week, hovering near a 27-month low, pressured by expectations of more equity supply and weaker profitability. (Reporting by Luoyan Liu and John Ruwitch; Editing by Shri Navaratnam)

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