The central bank itself said the move was intended 'to solve outstanding problems in current economic conditions, [allow for] targeted protection and control [and] maintain stable and fast economic growth'.

But that is not the way the news was greeted by investors when the Shanghai stock market opened yesterday and bank stocks plunged while shares in some property developers bounced strongly.

The reaction underlined once again what a blunt and untargeted policy instrument interest rate settings by a central bank can prove to be.

Although in yesterday's case the message that the PBOC intended to send by announcing the cut in rates and lowering the proportion of deposits that lenders must hold in reserve was overtaken by the shock value of United States investment bank Lehman Brother's announcing it had failed to find a rescuer and would file for bankruptcy.

Around the region stock markets collapsed yesterday as investors took flight from finance stocks. In Shanghai trading, Bank of China dived 9.17 per cent to close at 3.17 yuan (HK$3.62), Bank of Communications lost 9.81 per cent to 5.79 yuan, and the country's largest lender, Industrial and Commercial Bank of China, fell 9.95 per cent to 3.80 yuan.

And the money quitting bank stocks, it would appear, was flowing straight into some property developers in the belief that the PBOC was poised to relax the policy measures it had put in place to cool demand in the property market and force prices down to more affordable levels.

Such a move would clearly benefit developers who are caught in the pincer of falling sales revenues and rising credit costs - which was exactly the way investors saw it, pushing shares in Poly Real Estate Group up 4.8 per cent to 11.80 yuan, while China Merchants Property Development gained 3.02 per cent to 11.25 yuan.

It is evident that an easing of inflation fears strengthened the case for lower rates. Data for last month showed that the increase in China's consumer price index slowed to 4.9 per cent year on year from 6.3 per cent in July.

However, the data also revealed that costs to producers continued to rise sharply, with producer price index inflation up at 10.1 per cent year on year from 10 per cent in July. Fixed-asset investment growth continued its blistering growth, up 27.4 per cent year-to-date last month.

In the circumstances analysts are divided over the wisdom and timing of the PBOC's move.

Morgan Stanley saw more to come, advising its customers that the central government was determined to improve investor sentiment and to expect further policy responses at a later stage to avoid a deceleration in economic growth. On the cards, it predicted, was an increase in lending quotas to stimulate loan growth and possible tax cuts.

But against the mixed economic backdrop, others cautioned that any further price liberalisation could cause a rebound in CPI inflation in the next few months.

'Falling CPI inflation, rising PPI inflation and stronger investment growth - suggest that policymakers will continue to take a prudent and gradual approach in shifting policy focus from inflation to growth, but if implemented in a gradual and orderly way, inflation should remain below 6 per cent year on year in the rest of this year, in our view,' Lehman Brothers said in a client note.

Goldman Sachs analyst Liang Hong said that while the PBOC move could give a badly needed boost to investor confidence it had been 'designed carefully so as to only provide some targeted relief rather than an across-the-board easing, suggesting lingering concerns about inflation'.

Capital markets and equity research house Calyon said the move suggested the PBOC was more worried about the global credit crunch than initially thought and had moved to support its financial sector.

In the circumstances punting on any quick relief for China's property market would seem to miss the real target of the policy moves - supporting the mainland's finance sector while keeping a wary eye on inflation.