Taiwan stocks rebounded on Tuesday, as worries about a war with China subsided.

Shares jumped 5.5% as many investors suspected that government funds bought shares to stabilise the market.

The Taiwan Stock Exchange index surged 468.43 points to close at 9,004.48.

On Monday, shares had plunged 2.6%, following a presidential win by an opposition party leader at the weekend.

Chen Shui-bian, who has previously advocated independence from China, was elected president on Saturday, forcing the ruling Kuomintang party out of office for the first time in 50 years.

Government steps in

Many traders suspected that the government had intervened to support the market.

This helped lift sentiment at the same time as street protests against the leadership of the defeated Nationalist Party were dwindling, one investor said.

William Wang, manager of Taiwan International Securities added: "My guess is that the government-linked funds have bought a huge amount of shares to boost market sentiment."

Finance Minister Paul Chiu has imposed an emergency decree limiting any share falls to 3.5% over the next two weeks, half the normal daily limit of 7%.

High tech stocks rally

The rally was led by Taiwan's two biggest high-tech companies. These are Taiwan Semiconductor Manufacturing Co, which closed up 6%, and United Microelectronics Corp, which closed up 6.8%.

Their shares account for about a fifth of the value on the Taipei market.

"I see the rebound as quite natural as election uncertainty is over and Taiwan's economic fundamentals are so strong that buyers are seeing the recent downward corrections as a good chance to buy," Beyond Asset Management president Michael On said.