Shanghai's B-share index fell 3.4 percent to close at 116.456 points and Shenzhen's fell 2.15 percent to 191.19. Hard currency B shares are open to Chinese and foreign investors.

"Investors are reluctant to add fresh liquidity into trading, as they saw no opportunities of making money in the near term," said Zheng Weigang, a senior analyst at Shanghai Securities.

"The market is likely to continue to fall in the near term."

Brokers said investor selling gathered steam after news spread that Huaxia Bank had obtained regulatory approval to launch a 5 billion yuan (US$604 million) domestic A-share issue.

Bank stocks were particularly hard hit, with Pudong Development Bank falling 3.12 percent to end at 9.62 yuan (US$1.16) on talk that it may soon implement a plan to issue 300 million additional A shares, first announced a year ago.

Too many IPOs and frequent share issues have helped pull markets down by more than 38 per cent in the last 19 months.

"There was renewed talk today of a quick increase in the number of shares, triggering a selling spree in particular in bank shares," said analyst Chen Dong of MF Securities.

Huaxia Bank would finalize pricing for its initial public offering soon, a source close to the deal told reporters.

Huaxia Bank and Pudong Bank declined to comment.

Yuan-denominated A shares in Shenzhen Development Bank dropped 4.32 percent to 10.63 yuan (US$1.28), China Merchants Bank fell 2.64 percent to 8.47 yuan (US$1.02) and Minsheng Bank slipped 2.19 percent to 9.83 yuan (US$1.19).

Brokers said investors were also disappointed that a recent technical rebound - which had seen share indices rise four per cent in two weeks - had lost steam in the previous session.

"Investors had initially expected the rebound to continue towards the end of this year," said Zheng Weigang, a senior analyst at Shanghai Securities.

"But the rebound failed to live up to market expectations as share prices began falling again on Wednesday, sparking renewed pessimism over the near-term market trend," he said.

The benchmark Shanghai composite index, grouping A-and B-shares, closed down 2.63 percent at 1,384.152 points, falling blow the psychologically important 1,400 level.

The Shenzhen sub-index dropped 2.67 percent to 2,809.94 points.

Analysts said they expected the composite index to test this year's lowest closing level of 1,358.691 points, set on January 22, as sentiment was weak due to poor corporate results and an

official crackdown on market corruption.

Yesterday, investors also sold stocks in loss-making firms ahead of the 2002 corporate reporting season starting in January.

Shengrun Group Co, a Shenzhen-listed firm which performs after-sales auto service and which made heavy losses in the first nine months of this year and in 2001, was the biggest B-share decliner and closed 4.94 percent lower at HK$2.31.

Shenzhen's A-share index dropped 3.13 percent to 417.02 points and Shanghai's fell 2.61 percent to 1,446.652.

(China Daily December 27, 2002)