By Douglas Huang and Langi Chiang

BEIJING, April 23 (Reuters) - China has cut its stamp tax on stock trading to 0.1 percent from 0.3 percent, the government said on Wednesday, to bolster the country's markets which have been in free-fall since mid-January.

The long-rumoured cut will take effect on April 24.

Investors have been pushing for such a move, with the country's benchmark index <.SSEC> off about 50 percent from its peak last October.

The cut returns the stamp tax to its level last May, when the government raised it to cool the market, which was surging in a two-year bull run that ultimately boosted the key index nearly six-fold.

Lin Songli, analyst at Guosen Securities in Beijing, said the move had been expected because the market had sunk as far as the government was willing to tolerate.

"If the market continues to decline, it may hurt the real economy, especially domestic consumption," he said.

"The next step for the government will be to slow down the approval of IPOs and the issuance of additional shares," he added.

Talk that the government was on the verge of cutting the unpopular tax has periodically boosted share prices.

The benchmark Shanghai Composite Index rose 4.15 percent on Wednesday, partly on hopes that regulators might step in to prop up the market, after slipping the previous day to its lowest in 13 months.

Both sellers and buyers will be required to pay the 0.1 percent trading tax, contrary to speculation that one or the other might be exempted.

The government has grown worried about mounting anger among ordinary investors, largely expressed in online forums, who had not counted on the stock market diving when they bought shares in its heady days.

The market was a key topic at a meeting of China's State Council, or cabinet, on Wednesday, when Premier Wen Jiabao said the country's beleaguered stock markets had made real strides in recent years but still had a ways to go before they could be considered mature.

Earlier Chinese media reports of the cabinet meeting said the government had discussed draft laws to beef up supervision of securities houses and require better risk management, but made no mention of the stamp tax cut.

"It is a long-term task to build a capital market that is transparent, efficient, rational in structure, perfect in function and safe in operation," Wen said, according to state radio.