Asian Markets Update: Government Intervention Halts Taiwan Slide

Stocks in Hong Kong reverse early losses, while Japan is closed for a holiday.
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TOKYO -- Taiwan's president-elect

Chen Shui-bian

changed the political landscape of the region Saturday, when he ended the Nationalist party's near 50-year rule of the island. But his influence on Taiwan's stock market was muted by government intervention to counteract panic selling, as well as a temporary reduction in the maximum that stocks in Taiwan are allowed to fall in a single day.

Investors were on guard and trading volumes were extremely low. Taiwan's

TWSE

index closed down 227.22 points, or 2.6%, at 8536.05, while Hong Kong's

Hang Seng

index retraced early losses and closed higher. Tokyo markets are closed for a national holiday and will resume trading Tuesday.

After Chen's victory over the weekend China's reaction has been subdued, following several fearsome against voting for Chen, delivered during the election campaign. China considers Taiwan a renegade province and has threatened military action if Taiwan pursues full independence. Chen's Democratic Progressive Party has in the past espoused full independence for Taiwan, but Chen ran on a more conciliatory platform, promising not to declare independence.

Some analysts had predicted Taiwan shares could drop by 10% to 15% this week if Chen won. However, Taiwan

finance minister Paul Chui

chopped the daily downward trading limit on shares to 3.5% Sunday, which gave the market some cushion. In addition, the government's so-called market stabilization fund was again seen buying up shares today, traders added, accounting for about 60% of the buying in the market.

"Chen's victory in Taiwan will pressure stocks on the island for at least a week. But after that, there is no reason to start picking up shares again if China stays quiet on the issue. We'll just have to ride this week out but no one is panicking," said one trader from a UK house in Hong Kong.

Taiwan Semiconductor Manufacturing

(TSM) - Get Report

dropped NT$6.00, or 3.2%, to 184.00,

Via Tech

lost 12.00, or 3.5%, to 335.00, and

Taiwan Cement

shed 1.00, or 3.0%, to 32.30.

Several telecom-related shares closed higher after the government awarded three licenses for Taiwan's fixed-line telephone market on Sunday.

Pacific Electric Wire & Cable

jumped 1.40, or 3.8%, to 38.70, while

China Rebar

soared 1.00, or 7.0%, to 15.30.

Meanwhile, Hong Kong's Hang Seng index rose 151.47 to 17,234.46, reversing earlier losses, as fund managers picked up

China Telecom

(CHL) - Get Report

, up HK$2.75, or 4.1%, to 70.00 and

Cable & Wireless HKT

(HKT)

, up 0.15 to 22.10.

Bank shares suffered, but not on account of Taiwan. With the U.S. likely to raise interest rates Tuesday when the

Federal Open Market Committee

meets, interest rates in Hong Kong would also edge higher, since Hong Kong's currency is pegged to the dollar.

HSBC

(HBC)

dropped 1.50, or 1.7%, to 88.50, while

Hang Seng Bank

(HSNGY)

shed 1.25, or 1.8%, to 67.75.

After months of speculation that

China Telecom

and

Legend

(LGHLY)

, up 0.55, or 4.6%, to 12.55, would be included in

Morgan Stanley Capital International's

China Free index, the talk finally turned out to be true. MSCI removed 22 firms from the index to include China Tel and Legend, as well as

Citic Pacific

,

China Everbright

and

Cosco Pacific

. Many international investors use the MSCI indexes are their benchmarks.