Residents of the South China province said panicked people in major cities, including Guangzhou the provincial capital, Zhuhai and Shenzhen, were sweeping shelves of some pharmacies clean of medicines after the disease killed five people.

"A rush to buy pneumonia medicines in Guangdong cities triggered buying in drug stocks, but there were signs that interest in pharmaceutical companies would be short lived," said Wu Ang, an analyst with CITIC Securities.

Lukang Pharmaceutical, a key maker of antibiotics, saw its yuan-denominated A shares rise their 10 percent daily limit to 7.14 yuan (US$0.86). A shares are available to Chinese and select foreign investors.

Shanghai's composite index gained 12.60 points to 1,492.76. Shenzhen's shares rose 20.68 to 3,031.31.

Shanghai's hard currency B-share index ended up 0.53 percent at 125.169 points while Shenzhen's rose 0.63 percent to 207.36. B shares are open to foreigners and Chinese.

Guangdong health officials said there was little cause for panic as the spread of the disease had been contained after 305 people were infected.

"There were exceptionally more cases of infectious pneumonia this year due to the volatile weather," a local health official said.

"But an epidemic is unlikely due to effective quarantine measures."

Domestic A shares in Sanjiu Medical, the listed arm of China's top drug maker, Sanjiu Enterprise Group, was one of the top gainers with a rise of 5.45 percent to 9.28 yuan (US$1.1).

On the B share market, Accord Pharmaceutical was the third biggest gainer, closing up 2.46 per cent at HK$4.16 (US$0.54).

Analysts said they expected the fever for drug stocks to cool today, with share indices likely to move narrowly.

"Share prices are unlikely to rise sharply as investors are cautious now, partly because of uncertainties surrounding the dispute between the United States and Iraq," said analyst Zhan Yibing of Merchants Securities.

"But the markets will have little room to fall as the key National People's Congress meeting is nearing," he said, referring to an annual parliament session scheduled in March due to reshuffle ministerial posts.

Chinese investors are usually reluctant to sell ahead of major government meetings, hoping such gatherings would yield market-friendly policies that push up share prices.

On the foreign exchange market in Shanghai, China's yuan weakened two notches against the US dollar to close at 8.2775 yesterday due to a large spurt of import-related dollar purchases, dealers said.

The yuan moved narrowly between 8.2773 and 8.2777, while turnover fell to a thin US$250 million from Monday's US$310 million.

"There was some dollar buying from importers late in today's session which made the yuan end slightly lower, but this did not represent a trend," said a dealer at a state-owned bank. Most deals were conducted at 8.2773, he said.

The yuan, which is not freely convertible on the capital account, has moved near the firm end of a central bank-enforced 8.2760 to 8.2800 range, buoyed by healthy foreign trade.

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

Trading hours now 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.

Dealers said they expected the yuan to move in a small 10-notch box centred on 8.2770 in the near term.

Central bank officials have said the yuan's range could be widened in the longer term to help counter any impact on trade and investment from China's accession to the World Trade Organization in late 2001. But they have given no timetable.

(China Daily February 12, 2003)