Updating earlier story after Sino-Forest said it has hired PricewaterhouseCoopers to help it investigate the allegations in Muddy Waters' report.

Here is the statement from Sino-Forest.

See below for our original story.

Sino-Forest is putting up a fight. The Chinese forest operator on Monday issued a strongly-worded statement that hit back at Muddy Waters, which had accused it of fraud.

The result: shares in Sino-Forest rose as much as 60 per cent in Toronto before giving up some gains, and closed about 17 per cent higher, at C$6.10($6.2).

Sino-Forest said on Monday it would post supporting evidence -- including proof of tree ownership -- on its website to refute Muddy Waters' allegations. These documents are still nowhere to be found on the website, as at pixel time.

The battle between Sino-Forest and Carson Block, the man behind Muddy Waters, is unusual in that Chinese companies accused of fraud don't always fight back. And it is only likely to intensify further, as neither side appears willing to back down. The stakes will only get higher: Sino-Forest appears bent on battling to the end, which means Block could risk losing his credibility.

Already, Sino-Forest has said it is scheduling an analyst tour of its China-based plantations in July. The company said it also plans to provide details about how it uses its cash in a quarterly report on June 14.

Clearly, Sino-Forest -- Toronto's largest listed forestry company by market cap before the allegations -- is eager to fight back. And it's a battle most Chinese companies wouldn't fight, said Irving Kau, CFO of Nasdaq-listed Origin Agritech, a mainland seed production company.

"While short-sellers' allegations sometimes turn out to be right, it's still so much easier to attack a Chinese company because most don't fight back. A good percentage of Chinese companies don't know what to do when a short-seller accuses them of fraud. They think it will just blow over, but by not doing anything they fuel more suspicion," he told FT Tilt.

So far, Sino-Forest has been an exception, perhaps because it has even more at stake: a cast of reputable businessmen, for instance, sits on its board. Paulson & Co, the hedge fund, is its largest shareholder.

"What Chinese companies need to do is come up with answers and take these short-sellers to court. If a short-seller attacked a US company, there would be a lawsuit from day one," Kau said.

Block is also sticking to his guns, accusing Sino-Forest of inflating its revenues by operating a complex structure that hides how cash is moving throughout the company. On Monday, he reiterated his "short" position against the Chinese company, telling Bloomberg TV in this must-see video: "We were short, and we continue to be short. This is basically just another day at the office."

Block didn't disclose how he much was shorting, but said he would maintain the position until the share price reached close to zero.

See also:
Full coverage of Chinese reverse mergers - FT Tilt