Nov. 2 (Bloomberg) -- China's government pension fund declined to comment on a newspaper report that it's been instructed to reduce equity holdings within a month.

The National Council for Social Security Fund must cut the stocks in its investment portfolio by at least 30 percent and up to 50 percent, according to a report in yesterday's Securities Times, a state-run newspaper, which didn't cite a source.

The stock sale is valued at between 40 billion yuan ($5.4 billion) and 60 billion yuan, the newspaper said, citing its own calculation. This is the first time the pension fund has reduced its holdings amid China's stock market rally, the newspaper said without elaborating.

Jin Yingzi, the pension's deputy director-general, declined to comment today when reached by phone in Beijing. Li Keping, director general of the pension's investment department, couldn't be reached to comment.

Gao Xiqing, vice chairman of the pension fund, said during an April 27 investment forum in Beijing that China's stock prices are ``defying gravity.'' China's key stock index has soared by another 60 percent since Gao's remarks. Gao couldn't be reached today to comment.

`Reduce Over-Speculation'

``This is just one of many steps the government is taking to reduce over-speculation in the domestic market,'' said Ivan Tham, who helps manage $5 billion in assets at City of London Investment Management in Singapore, including China's yuan- denominated A shares. ``The problem with the market is that there're too many funds chasing too few stocks. A-shares are overvalued at the moment and must let earnings catch up.''

China's benchmark CSI 300 Index, which tracks yuan- denominated shares on the Shanghai and Shenzhen stock exchanges, fell as much as 2.4 percent today, extending yesterday's 1.5 percent drop. The index has risen 169 percent this year, making it the best-performing benchmark among the 90 global indexes tracked by Bloomberg.

The gauge is valued at 43 times estimated profit, almost twice that for Hong Kong's Hang Seng Index, which trades at 22 times. China now has seven of the world's 15 biggest companies by market value.

The pension fund sold 68.7 million Hong Kong-listed shares in Industrial & Commercial Bank of China Ltd., the nation's largest, last month, according to a Hong Kong stock exchange filing.

To contact the reporter on this story: Jiang Jianguo in Shanghai at jjiang@bloomberg.net

Last Updated: November 2, 2007 03:47 EDT