Chinese shares soared early Thursday after the government cut a tax on stock transactions in a move widely seen as a signal of support for the markets.

 An investor reacts to the stock price monitor in January in Shanghai, China.
 The benchmark Shanghai Composite Index surged as much as 9.6 percent to 3,593.2 in morning trade as investors resumed buying after weeks of holding back in hopes of market boosting news. It later dropped back to 3515.6, up 7.2 percent.
The jump came after the government announced late Wednesday that it was cutting a stamp tax on share transactions to 0.1 percent from 0.3 percent, reversing a move it made May 30 -- when it was seeking to cool surging stock prices.

The measure, which took effect Thursday, was approved by the State Council, Finance Ministry and State Administration of Taxation, the official Xinhua News Agency reported.

The Shanghai market has been hit hard recently, dropping to levels last seen in March 2007.

"In recent weeks, expectations have been mounting on the government to take decisive steps to prop up the domestic markets," Jing Ulrich, chairwoman of China equities for JPMorgan Chase & Co.

"The lowering of stamp duty ... is among the most aggressive steps the government could have taken to improve sentiment," Ulrich wrote in a research note.

Alarmed by an 11 percent slide in the Shanghai index last week, late Sunday night the China Securities Regulatory Commission also announced new restrictions on sales of large blocks of shares newly freed from lockup periods.

That move, showcased in front-page headlines of state-run newspapers, was explicitly aimed at reassuring investors fretting over some $430 billion in previously nontraded shares due to enter the market this year. But it seemed to do little to spur buying.

For the first time in more than a year, the Shanghai benchmark dropped below 3,000 briefly during trading Tuesday before rebounding later in the day. Rumors that another market boost was in the works helped push the index up 4.2 percent on Wednesday.

The stamp tax reduction seems to have done the trick, for now.

The Shanghai index was helped Thursday by a 7.1 percent advance in PetroChina's stock, to 17.70 yuan. Its shares account for about one-fifth of the benchmark's total value.

At least 200 companies' shares had hit the 10 percent daily upside limit by late morning, according to figures compiled by market monitor Wind Consulting Co