Shanghai shares will likely edge lower early this week after China's central bank raised interest rates yesterday, adding jitters about higher borrowing costs.

 

But analysts said the key equity index may again test the psychologically-important 3,000-point level, with the market hinging on the performances of blue chips.

 

They said liquidity is abundant as a slew of mutual funds are expected to build positions. But wide fluctuations may continue as profit taking has yet to end.

 

The Shanghai Composite Index lost 0.72 percent on Friday to close at 2,930.48, giving the gauge a loss of 0.25 percent for the week.

 

"The interest-rate hike provides investors another excuse to take profits," said Lu Chengde, a Guosen Securities Co trader. "But I don't think it will have a long-term impact. Yet the move could make it harder for the index to hold above 3,000."

 

The People's Bank of China yesterday lifted the one-year lending rate 0.27 percentage points to 6.39 percent in a bid to ease inflationary pressures.

 

The Shanghai Composite Index has twice risen above the 3,000-point level this year, only to dip below shortly after. The index plunged 8.84 percent on February 27, the steepest one-day loss in a decade, after it closed at 3,040.60 a day earlier.

 

"This time, we'd like to pay close attention to the stock movements of large-caps," said Zhu Wenlin, a Guohai Securities Co trader. "The question will be whether recent weak performances by these shares can come to an end."

 

Ping An Insurance Group Co, China's No. 2 life insurer, joined the index on Thursday, when it inched up 0.04 percent. On Friday, the shares rose 0.53 percent to 45.20 yuan (US$5.84), helping steady the market.

 

The index in Shanghai will likely fluctuate in a range between 2,800 and 3,050 points this week, according to Beijing Shoufang Investment Consulting Co.

 

The consultancy advised investors to avoid chasing chips with hefty gains of late and look for bargains among companies with solid growth fundamentals.

 

"We've noticed there's capital flowing out of the market, but we've also seen money from funds ease the market dips," said Shoufang in a note to clients. "We believe it might work better to snap up blue chips now as they may lead the market higher in coming sessions."

 

(Shanghai Daily March 19, 2007)