April 26 (Bloomberg) -- China may limit new share sales and allow investors to borrow money to buy equities in an effort to boost the world's sixth worst-performing stock market, according to Citic Securities Co.

``The government may announce new measures to support the market if it doesn't stabilize,'' said Cheng Weiqing, chief strategist at Citic, the nation's largest publicly traded brokerage, in an interview in Beijing.

The CSI 300 rallied 16 percent last week after the government reduced the so-called stamp duty on stock transactions to encourage trading. The index has still declined 20 percent over the last three months, the sixth steepest loss among countries tracked by Bloomberg.

Shares slumped after the CSI 300 rose almost sixfold in 2006 and 2007 and stocks traded at an average 52.8 times earnings. They also fell on concern government steps to curb inflation would hurt corporate profit and new equity sales would overwhelm demand. This year's decline wiped out $1.14 trillion in market value.

Margin buying allows investors to pay a percentage of the cost of a stock, with the brokerage financing the rest through a loan. China clamped down on unauthorized margin trading in 1997 and 2001, when banks were found to have illegally channeled money into the stock market.

China is trying to revive trading after transactions on the two main stock exchanges slipped to a weekly average of 6.3 billion shares from 14.7 billion shares in 2007, according to exchange data. The government tripled to $30 billion the amount overseas institutions can invest in yuan-denominated stocks and other securities in December. Two months later, it lifted a freeze on the sale of new mutual funds.

Expensive Shares

Shares in the CSI 300 now trade at 28.1 times profit, still the highest among 14 Asian countries tracked by Bloomberg. Corporate earnings growth this year may disappoint investors as costs rise and gains from investment income drop, Morgan Stanley analysts Jerry Lou and Allen Gui said in a report last week.

The government may need to implement more measures should the Shanghai Stock Exchange Composite Index, another benchmark for Chinese shares, fall 15 percent, according to Wu Youhui, a strategy analyst at GF Securities Co. in Guangzhou. The index closed at 3,557.75 on April 25.

``Tightening secondary financing by listed companies and allowing margin financing are among possible choices,'' Citic Securities's Weiqing said.

Restricting the sale of additional stock reduces the supply of equity in a market, bolstering share prices. Chinese companies sold 25.5 billion yuan ($3.6 billion) of additional shares in 2007, almost quadruple the previous year's total, according to data compiled by Bloomberg. Shares worth 14.9 billion yuan have been sold so far in 2008.

To contact the reporter on this story: Zhang Shidong in Shanghai at szhang5@bloomberg.net.

Last Updated: April 25, 2008 19:15 EDT