Chinese shares have surged by more than 9%, after the government scrapped plans to sell billions of dollars'-worth of shares onto the market.

A year ago, the Chinese government said it would sell stakes of up to 75% in all state companies - holdings worth at least $240bn (�161bn) - in a bid to raise finance for the pension system.

But fears that the market would soon be swamped only depressed share prices: China's main stock market index has dropped 8% this year, at a time when most Asian markets are soaring.

Popular disquiet over the share-sale plan, combined with the effect on international investor confidence, has now persuaded the government to make a U-turn.

"The sale of state-held shares is an important reform move," a spokesman for the Ministry of Finance was quoted as saying.

But "it is hard to formulate an appropriate plan that is systematic and widely accepted by the market in a short time."

On again, off again

Although the government refused to depict its abandonment of the sale as a full-scale policy reverse, the markets were cheered.

Shares on Shanghai's local currency-denominated A-share market shot up 9.1%, and the foreign currency-denominated B-share market surged by 9.3%.

Most shares on the Shanghai exchange are limited by regulations to a maximum 10% change from their closing price at the end of the previous session.

The government's move represents the latest in a series of policy shifts since the sales were announced last June.

Sales were stopped in October, but Prime Minister Zhu Rongji said late last year that the programme would have to be restarted if the social security system were not to collapse.