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China is suspending initial public offerings, creating a market stabilization fund and telling investors not to panic in an effort to shore up its stock market, which has had the largest three-week drop since 1992.

According to company filings to the exchanges Saturday evening, 10 companies will suspend IPOs on the Shanghai Stock Exchange and 18 will do the same at the Shenzen Stock Exchange.

The move was ordered at a meeting of the State Council, China’s cabinet, and will be enforced by the China Securities Regulatory Commission, the financial magazine Caijing reported on its website on Saturday, without saying how it obtained the information or how long the planned freeze would last.

Calls by Bloomberg News to the press office of China’s State Council went unanswered outside regular business hours.

Halting IPOs may stem the diversion of funds away from current listings. The move came hours after major Chinese brokerage firms pledged billions of dollars to form a stock market rescue fund.

The People’s Daily, the official newspaper of China’s ruling Communist Party, urged investors to stay calm. Moves to stabilize the market take time to transmit, the paper said on Weibo, China’s Twitter-like microblogging site. “During this process, investors should have confidence and patience, instead of losing their minds and not knowing what to do amid anxiety and panic,” it said.

Abrupt End

The Shanghai Composite Index fell 5.8 percent Friday to 3,686.92, bringing the decline since its June 12 peak to 29 percent. More than $2.8 trillion of value has been erased from the Chinese stock market during that time, an abrupt end to the longest bull market in the nation’s history. Stocks entered a bear market on June 29 as leveraged investors headed for the exits; China’s securities regulator that day urged investors to be rational.

The Shanghai gauge had surged more than 150 percent in the 12 months prior to June 12 as investors assessed that monetary stimulus would revive China’s economy. Strategists at BlackRock Inc., Credit Suisse Group AG and Bank of America all said in June that Chinese equities were in a bubble.

Funds will be returned to investors on Monday for the new offerings that had already started the subscription process, the companies said in filings to the exchanges.

With the Shanghai gauge tumbling more than twice as fast as any other index worldwide, regulators also pledged to investigate potential market manipulation and have unveiled other measures to comfort the nation’s 90 million individual investors. The government on Friday said it planned to make it more expensive to speculate on stock index futures.

Highly Capitalized

The Securities Association of China said Saturday in a statement on its website that a group of 21 brokerage firms led by Citic Securities Co. will invest the equivalent of 15 percent of their net assets as of the end of June, or no less than 120 billion yuan ($19.3 billion) in total, to set up a stock-market fund.

The fund will invest in exchange-traded funds of highly capitalized stocks, it said. The funds should be available by 11 a.m. on Monday, Caijing said in a separate report.

In another development, top executives from 25 Chinese mutual funds, including China Asset Management Co. and E Fund Management Co., promised to “actively” buy stock funds and hold them for at least one year, according to a statement on Asset Management Association of China’s official website.

‘Fleeting Effect’

The moves come after measures to shore up equities failed to stop margin traders from unwinding positions at a record pace. The People’s Bank of China cut interest rates last week, while margin-trading rules were eased and trading fees were cut Wednesday.

The brokers’ fund to bolster equities may have only “a fleeting effect when daily turnover has reached 2 trillion yuan,” according to Hao Hong, China equity strategist at Bocom International Holdings Co. in Hong Kong.

“This 120 billion yuan won’t last for an hour in this market,” Hong said by phone from Beijing Saturday. “It might benefit blue-chip stocks, as investors may see them as value, but the bursting of the bubble in small-cap/tech stocks is likely to continue.”

Small-Cap Stocks

The ChiNext index of smaller companies in Shenzhen traded at a record 131 times reported earnings last month, five times the level of the Shanghai Composite Index, after tripling over the past year. The gauge had lost more than 30 percent from its June 3 peak through Friday.

“The market’s most acute concern is still these smaller cap stocks, as investors levered up to buy them and now margin lending curbs hit them the hardest,” Hong said. “With their valuation in the stratosphere, nobody is willing to step in and bolster these stocks.”

The brokers pledged not to reduce any proprietary investments in the equity market as long as the Shanghai Composite Index stays below 4,500, the association said. Listed brokers will actively buy back outstanding shares, while encouraging their parent companies to increase holdings, according to the statement.

The economic fundamentals that had justified the stock market’s rally before the rout hadn’t changed, the brokers' statement said. “It is therefore our duty to unite in stabilizing this market,” the group said.

‘Downward Pressure’

Li-Gang Liu, chief China economist for the Australia & New Zealand Banking Group Ltd., said the market would eventually find its own level.

“If a listed company thinks its shares are undervalued, it could buy back shares. Such purchases shouldn’t be triggered by any kinds of administrative calls,” he said. “I believe the market is still under big downward pressure.”

The government could take other steps to support the market. China’s central bank-affiliated Economic Observer reported last week that the government is considering reducing the stamp tax, while the finance ministry said it will allow the national pension fund to invest in shares.

On Friday, China’s securities regulator said it will revise rules to encourage foreign investment in the market. Chinese media also reported that a unit of China’s sovereign wealth fund has been buying exchange-traded funds in the past week to support the market.

(Adds number of brokerage firms setting up fund in eleventh paragraph.)