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Gov't activates fund to support market

In a movement considered “long overdue” by some analysts, the injection of government money into the tanking stock market to prop up stock prices has been given the green light, government officials announced yesterday.

Vice Premier Chen, the topmost government official charged with the country's financial stability, however, insisted the fundamentals of the economy and the stock market are sound, expressing his hope for continued optimism among the people.

In a press conference at the Government Information Office yesterday evening, members of the management committee for the National Financial Stabilization Fund (國家金融安定基金) announced their decision to authorize the use of money from the funds to stabilize the market.

According to Chen, after his discussion with the fund's management committee members, a resolution was adopted to authorize the fund's executive secretary to implement measures to stabilize the stock market if and when it is necessary to do so.

The legal capacity of the fund is NT$500 billion (US$16.49 billion), according to Chen.

The activation of the stabilization mechanism is called for by the persistent down trend in share prices as they come under the influence of international economic woes and slumps in both the U.S. and European stock markets, the committee members said.

A second justification is that since the beginning of December, average daily turnover has sunk lower than the daily average for the previous 11 months, greatly eroding the confidence of investors, they continued.

A third factor cited was the sudden death of North Korean leader Kim Jong Il, which, according to committee members, might lead to uncertainties and chaos in the international financial market.

These “changes” on the international scene meet the criteria enshrined in Article Eight of the Regulations Governing the Establishment and Management of the National Financial Stabilization Funds, which says the fund's executive secretary shall be authorized, by a resolution, to use fund money to stabilize the market in the event that “national stability is in danger of being compromised and capital and other financial markets are in danger of becoming chaotic when the people's confidence is significantly affected by major international and domestic events and their resulting major in- and out-fluxes of international capital,” according to the committee members.

Shortly before the announcement, stock prices rebounded a little, egged on by a perceived favorable outcome of the smart phone maker HTC Corp.'s patent battle against U.S. computer giant Apple. However, over the past week, the weakness of Taiwan stocks had become evident as their prices sank beneath their 10-year moving average.

Pundits have vehemently called for government intervention in the form of an injection of capital to shore up stock prices.

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