Foreign analysts have mostly kept their faith in Taiwan's firm economic fundamentals, but local market-watchers continue to expect a heavy political risk discount on the island's stocks.

The TAIEX dropped 2.37 per cent to 5,997.92 points on Wednesday, prevented from further losses after the finance ministry temporarily halved the downward trading limit to 3.5 per cent to cushion market impact from premier Tang Fei's resignation. Turnover was a meagre T$25.27 billion (US$815 million), far below usual levels of T$60-80 billion as the tight trading band left sell orders piling up without matching buyers.

Strong medicine
Taiwan has not prescribed such strong medicine for the stock market since a devastating September 21, 1999 earthquake killed more than 2,400 people - a telling sign of the expected impact from Tang's resignation.

The highly popular Tang, who reluctantly accepted the premiership, had been seen as a stable and experienced hand in the Democratic Progressive Party (DPP) administration, which had never won the island's presidency until March elections.

But even Tang, a respected member of the long-ruling Nationalist Party, was unable to push policy reforms through an opposition-dominated parliament. Premier-designate Chang Chun-hsiung, a DPP veteran, is expected to have even more trouble breaking political deadlock.

Nuclear power struggle
An acrimonious debate over cancelling construction on the island's US$5.5 billion fourth nuclear power plant has also triggered fears industries starved for electricity could move their factories offshore.

Tang had said he was personally in favour of building the power plant, now already one third complete, while the DPP has traditionally opposed nuclear power. Tang said his resignation was for health reasons and unrelated to the plant. Tang was to have decided on the plant's fate this month.

A survey by the Chinese National Federation of Industries,one of Taiwan's leading chambers of commerce, showed 81.2 percent of industrial leaders backed the project.