Shares in Merchants Bank, the largest of China's four listed banks, fell 2.14 percent to 8.69 yuan (US$1.04) after the lender listed 18.85 percent of its 1.5 billion-share IPO placed to institutional investors after an eight-month lock-up period.

These investors sold the shares at a premium of around 20 percent to the IPO price of 7.30 yuan (US$0.879), brokers said.

Shanghai's B share index ended down 1.77 percent at 115.429 points, while Shenzhen's B shares fell 1.43 percent to 191.28. Hard currency B shares are available to foreign and Chinese investors.

"Selling in Merchants Bank intensified in the afternoon as the morning's trade showed no signs of a rebound," said analyst Dai Yizhong of Guotai Junan Securities. "It made share indices extend their morning losses, further weakening market sentiment."

But Merchants Bank's shares were approaching trading lows by yesterday's close and this could help curb more profit-taking, said Zheng Weigang, a senior analyst at Shanghai Securities.

The bank's A shares, open to Chinese and select foreign institutional investors, hit a low of 8.52 yuan (US$1.02) on May 30 after they were listed on April 9. They have fallen since they touched a high of 11.92 yuan (US$1.43) on June 10, in line with a market downturn.

Some analysts said yesterday afternoon's accelerated fall was unexpected as they had believed the benchmark Shanghai composite index would move narrowly around the psychologically important 1,400-point level.

The composite index, which groups B shares and A shares, fell 1.22 percent to 1,383.84 points as sentiment was also weak due to a 19-month market depression, brokers said.

"The markets' sudden change of face in the afternoon, although mainly attributable to Merchants Bank's fall, has sparked worries that institutional investors are fleeing the market," said Jinxin Securities analyst Xi Weidong.

"Share indices will probably fall again in the near term to look for a new support level," he said.

Analysts said they now expected the Shanghai composite index to test the year's closing low of 1,358.691 points, reached on January 22, or a trading low of 1,339.200 hit on January 29.

Liquidity was also short as brokerages were cashing in share positions for year-end settlement, they said.

The Shanghai composite index is down 38.37 percent from its peak in June last year, battered by worries about corporate health in a crackdown on market corruption and fears liquidity will diminish in the face of frequent initial public offerings.

On the B share market, investors sold chronic loss makers, with Shenzhen-listed China Bicycle Co the biggest decliner and ending down its daily 5-per-cent limit at HK$2.09 (US$0.276).

(China Daily December 11, 2002)