UPDATE 1-Taiwan 'suggests' state-owned banks buy stocks as market falls - sources

(Adds details, quotes, updates after market close)

TAIPEI, May 13 (Reuters) - Taiwan’s finance ministry has called state-owned banks to “suggest” they buy stocks amid steep falls on the island’s stock market, three sources familiar with the matter told Reuters on Thursday.

The benchmark index fell as much as 8% on Wednesday and closed down more than 4% on fears about rising domestic COVID-19 infections in Taiwan, which has generally kept the pandemic well under control. The index closed down a further 1.5% on Thursday.

The sources, who spoke on condition of anonymity as they were not authorised to speak to the media, said the Finance Ministry had suggested they buy large-cap stocks to take advantage of their lower price, but also stocks in traditional industries.

“Over the last two days we have been buying, and there’s been no selling to talk of,” one of the sources said.

A second source said a senior ministry official had contacted them around midday on Wednesday to “suggest” they buy into the market.

“We are paying close attention to the market changes,” the source said. “Of course we bought.”

A ministry official told Reuters the banks had their own investment teams and made their own decisions.

“It’s up to them to decide whether it’s appropriate to buy or sell,” the official added.

Taiwan has a formal government mechanism to intervene in the stock market in case of large fluctuations called the National Stabilisation Fund.

Taiwan Deputy Finance Minister Frank Juan told Reuters on Wednesday he did not rule out calling a meeting of the fund if the market situation worsened, although he said economic and market fundamentals were good and people should calm down. (Reporting by Liang-sa Loh; Writing by Ben Blanchard; Editing by Jacqueline Wong and Lincoln Feast.)