China stocks regain lost ground, but log biggest weekly drop since April

China's stocks on Friday regained almost all the ground lost in in the previous session, but still posted their biggest weekly fall in five months as a stellar bull run peters out. The Shanghai Composite Index closed up 1.2%, some 12 points above the key psychological level of 3,800. For the week, it declined 1.2%.

China's blue-chip CSI300 Index bounced 2.2%. It was down 0.8% for the week, its biggest drop since late July. Tech shares, which bore the brunt of Thursday's losses, led the recovery on Friday. The AI sector was up 5% and semiconductor stocks climbed 3%.

The start-up board index surged 6.6%, its best single-day gain in 11 months. Chip designer Cambricon also jumped 6.6% after sinking some 20% earlier in the week. Traders said there was buying on dips after a wave of profit-taking that followed China's largest-ever military parade subsided. Markets have also largely shaken off the jitters triggered by a Bloomberg News report that Beijing is considering measures to curb excessive stock speculation.

China's central bank said on Thursday it would inject 1 trillion yuan ($140 billion) into the banking system on Friday via outright reverse repo operations to keep liquidity "reasonably ample", interpreted by some as a gesture aimed at calming investors. Shanghai's benchmark index had shot to 10-year highs over the past two months, powered by record sums of leveraged bets chasing the rally. Analysts at China Securities said trading could remain volatile in the near term as the market enters a consolidation period.

"Taking some of the air out of the frothy part of the market is setting up for a more sustainable path down the line," said Jerry Wu, a portfolio manager at Polar Capital, based in London. "It will be a healthy correction and I don't think it changes the direction of travel, which we do believe is a sort of innovation-driven rally."

In Hong Kong, the benchmark Hang Seng was up 1.4% on Friday, and the tech sector rebounded 2% to register its fifth straight week of gains. ($1 = 7.1529 Chinese yuan)

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