The benchmark Shanghai composite index, grouping both hard currency B shares and yuan-denominated A shares, finished 1.76 percent higher at 1,565.840 points.

Shenzhen's sub-index rose by 1.90 percent to end at 3,411.10.

Shanghai's B-share index rose 1.62 percent to 117.12 points while Shenzhen's rallied 1.70 percent to 221.00. B shares are open to Chinese and foreign investors.

Six fund management firms began trading shares and bonds on behalf of the massive National Social Security Fund for the first time on Monday, a move investors expect to support share prices over the medium term, brokers said.

Media reports said the six companies were allowed to invest an initial 14 billion yuan (US$1.7 billion) of welfare funds in securities markets.

Previously, the government had limited the funds to safer investments such as bank deposits, Treasury or corporate bonds, or the occasional initial public offering by a blue-chip company.

"Stock trading by pension funds was seen as a major positive factor for the markets," said analyst Zhang Yong at Great Wall Securities. "We expect further gains in share indices, led by blue-chip large caps."

Analyst Zheng Weigang at Shanghai Securities said he expected the Shanghai composite index to rise another 5 percent over the next few weeks.

A shares in Sinopec Corp, the largest company by market capitalization, were the most actively traded and rose 2.02 percent at 4.04 yuan (US$0.487) as an unusually heavy 242.7 million shares changed hands.

The welfare fund acquired Sinopec's A shares at a higher price of 4.22 yuan (US$0.508) in the company's IPO July 2001, so investors spotted a bargain, analysts said.

Sinopec has traded mostly below its IPO price since its A-share listing in August 2001, but emerged from lows in early 2003 and has surged 37 percent since January 3, due in part to expectations of potential pension fund investment, brokers said.

On the foreign exchange market, China's yuan ended two notches weaker against the dollar at 8.2770 yesterday, but was still strong within its managed trading range, dealers said.

The yuan touched an intraday low of 8.2771 and a high of 8.2768, near the strong end of the tiny 8.2760 to 8.2800 band enforced by the central People's Bank of China.

Turnover rose to a moderate US$420 million from US$390 million on Tuesday.

"Hard currency demand from importers pushed the yuan slightly lower in thin trade," said a domestic bank dealer, adding most deals were seen at 8.2770.

The yuan has moved around 8.2770 for about two years, helped by healthy trade surpluses which ensured a steady inflow of dollars to the Shanghai-based foreign exchange market.

The yuan weakened to 7.0202 per 100 Japanese yen from Tuesday's 7.0045, but firmed against the euro to 9.6869 from 9.6999. It ended flat against the Hong Kong dollar at 1.0610.

(China Daily June 12, 2003)