Shanghai's composite index lost 19.6 points to 1,480.17. Shenzhen's shares shed 40.59 to 3,010.63.

Shanghai's B share index ended down 2.17 percent at 124.515 points while Shenzhen's fell 1.54 percent to 206.07. Hard currency B shares are open to foreigners and Chinese.

B share turnover was a thin US$12.7 million in Shanghai, down 7 percent, and HK$85.8 million (US$11 million) in Shenzhen, up 18.89 percent.

Analysts said punters were waiting for a final decision on the war with Iraq.

"Some investors cashed in and kept on the sidelines to avoid being trapped because they believe the stock markets will plummet as soon as war breaks out," said Orient Securities analyst Zhou Fengwu.

Analysts said war fears drove investors to sell heavyweight stocks such as China United Telecommunications Corp and Sinopec Corp in the afternoon session.

China Unicom, the domestically listed arm of the country's second largest mobile phone carrier, closed down 3.4 percent at 3.12 yuan (US$0.38). It was the most actively traded A share in Shanghai with 106.8 million shares changing hands.

Another heavyweight stock, Baoshan Iron and Steel Co Ltd, the listed arm of China's top steel maker, was down 1.1 percent at 4.66 yuan (US$0.56).

The company said yesterday its 2002 net profit surged a year-on-year 66.81 per cent due to galloping domestic demand and cost-cutting.

But analysts also said some investors began looking at oil stocks, betting these companies would benefit from the crude oil price rise a war is expected to bring.

Oil refiner Taian Lurun Co, based in East China's Shandong Province, was the biggest A share gainer in Shanghai, closing up 9.95 percent at 9.17 yuan (US$1.1).

Another oil refiner, Shenzhen Petrochemical, was the second best B-share performer in Shenzhen, rising 2.36 percent to HK$3.03 (US$0.38).

Analysts said they expect China's share indices to move in a narrow range around 1,500 points in the near term. Investors are waiting for market-boosting policies to prop up share prices and further develop China's bourses, they said.

"After the long holiday break, investors need positive news to boost their confidence. Otherwise, market sentiment may weaken again," said Duan Kai, an analyst at Great Wall Securities.

Although the markets surged almost 13 percent in January, they are still down more than 30 per cent since their peak in June 2001 due to a slew of negative factors such as poor corporate earnings, frequent A share issues and a crackdown on corruption.

On the foreign exchange market in Shanghai, China's yuan fell two notches against the US dollar, but dealers said it was likely to stay strong in the near term, supported by strong exports.

The yuan ended at 8.2773 to the dollar, down from Sunday's close of 8.2771. It moved narrowly between 8.2770 and 8.2774 as turnover fell to a thin US$310 million from US$510 million.

"A sudden rise in dollar demand late in the session made the yuan close a tad lower," said a domestic bank dealer.

"But market fundamentals have not changed. Ample dollar supply from China's strong exports will continue to keep the yuan at high levels in the near term," he said.

The Shanghai-based China Foreign Exchange Trade System has extended trading hours, which dealers said would help boost turnover on the foreign exchange market in the long run.

Since Saturday, trading hours last from 9.30 am to 15.30 pm daily without a break. Trade was formerly carried out between 9.20 am and 11.00 am.

(China Daily February 11, 2003)