Stocks in China and Hong Kong rebounded on Wednesday morning, as auto shares surged on government support measures, fanning hopes that Beijing will unveil further steps to prop up other struggling sectors.
China's blue-chip CSI300 index rose 0.9 per cent, to 3,208.85 points by midday, while the Shanghai Composite Index gained 0.7 per cent, to 3,059.36 points.
But for the quarter, both indexes are set to post a massive loss of roughly 28 per cent, the worst showing since early 2008 during the depths of the global financial crisis.
Hong Kong stocks, which tumbled to a two-year low on Tuesday, also bounced in morning trading, with the flagship Hang Seng index up 1.4 per cent.
Sentiment was aided by a surge in Chinese auto stocks, after Beijing announced it would halve sales tax on small-engine cars.
Among the biggest beneficiaries, Great Wall Motor soared 35 per cent in Hong Kong and 7.4 per cent in Shanghai.
Other carmakers including BYD , BAIC Motor and SAIC Motor also rose sharply.
"The tax cut is good news, as it raises hopes that China will unveil similar stimulus in other sectors," said Alex Wong, director of Ample Finance Group in Hong Kong.
"But I don't think more stimulus would reverse the market trend, because China's severe structural problems cannot be solved overnight."
In a sign that the government is stepping up its support to the economy, China's State Council, or Cabinet, on Wednesday issued guidelines encouraging deeper links between online businesses and bricks-and-mortar stores, pledging to cut red tape and promote tax and financial support to make it happen.
But investors didn't show much enthusiam to the news, with Shenzhen's tech-heavy growth board ChiNext down 0.6 per cent at midday, underperforming the broader market.
But railway shares surged on news that Indonesia will award a hotly contested, multi-billion-dollar railway project to China.
In Hong Kong, the Hang Seng index added 1.4 per cent, to 20,848.44 points, while the Hong Kong China Enterprises Index gained 2.5 per cent, to 9,457.90.