Stocks fell for a fourth day in five yesterday. Computer-related shares such as Taiwan Semi-conductor Manufacturing Co (TSMC, 台積電) fell after Lehman Brothers Holdings Inc cut its profit forecast for Intel Corp.
The TAIEX narrowed a 1.6 percent slide earlier on speculation that state funds bought shares in the market. Mega Financial Holding Co (兆豐金控) led advances among companies with government stakes.
The TAIEX shed 5.79, or 0.1 percent, to 5,727.78. The index has declined 19 percent from this year's high on March 4. About one share rose for each that fell.
Futures for July delivery shed 0.3 percent to 5,650.
"If Intel catches a cold, all of Taiwan's technology companies will suffer," said Michael On, managing director at Beyond Asset Management Co in Taipei.
"State-linked funds probably entered to support the market, while other investors also think shares are cheap now after recent falls," he said.
TSMC fell 2.8 percent to NT$44.70. Rival United Microelectronics Corp (聯電) lost 2.1 percent to NT$23.80. Mega Financial rose 1.4 percent to NT$22.30.
There are concerns that 3.1 billion newly issued shares in TSMC scheduled to start trading on the main bourse Thursday will weigh on the market, said Alan Tseng, an analyst at Capital Securities Corp (群益證券).
There were signs government funds stepped into the local market to prevent the index from slipping further when it touched a low for the day of 5,643.65, Tseng said.
Four major state-linked funds -- the state postal fund, the state employee fund, the labor insurance fund and the labor pension fund -- with more than NT$300 billion (US$8.9 billion) combined are often used by the government to stem stock declines and restore investor confidence.
Among government funds' buying targets was AU Optronics (友達光電), the world's third-largest flat panel maker. Shares in AU Optronics rose 1.3 percent to NT$47.80.
DRAM makers remained weak, with Powerchip Semiconductor Corp (力晶半導體), the country's largest memory-chip maker, falling 2.3 percent to NT$25.40. Nanya Technology Corp (南亞科技), the third largest, lost 3.1 percent to NT$25.20.
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