MUMBAI, July 9: Scores of brokers protested outside the Bombay Stock Exchange on Friday, saying a proposed tax on the purchase of securities on exchanges will cut into the margins of short-term traders.

But the stock market rose two per cent on the day, making up most of Thursday's losses, as long-term investors cheered moves to reduce capital gains taxes and brushed off the threat the turnover tax might have on bourse liquidity.

Finance Minister Palaniappan Chidambaram imposed a 0.15 per cent transaction tax on all securities purchased on the stock exchanges in the 2004-05 federal budget unveiled on Thursday.

The move brought the 40-billion-rupees-a-day bond market, where the difference between the buy and sell quote is about 0.05 per cent, to a standstill with only a few deals taking place.

And although the stock market rebounded, brokers said the move would sweep away day traders and dry up derivatives business. Brokers in Asia's oldest stock market, which has a market capitalization of $225 billion, said the turnover tax would chase away arbitragers and short-term traders who leverage on large volumes to convert small margins into modest gains.

"In the derivatives segment where the brokerage is 0.05 per cent, how can investors pay that kind of tax?" said Kuntal Shah, director at DT Gandhi Securities. He said the tax could eat away up to 80 per cent of the profit in a transaction.

"This could dry up volumes and widen the spreads." Scores of brokers and sub-brokers staged a noisy protest outside the Bombay Stock Exchange at the start of trade on Friday. They shouted "Down, down, Chidambaram," referring to the finance minister. Bond market dealers also criticised the proposed tax. -Reuters