Shanghai's composite index dipped 0.24 percent to 1,562.106, while Shenzhen's sub-index fell by 0.45 percent to 3,395.65.

Shanghai's B-share index fell 0.13 percent to 116.972 points, while Shenzhen's edged up 0.08 percent to 221.18. Hard currency B shares are open to Chinese and foreign investors.

"The entry of the welfare fund couldn't sustain buying momentum today, even though we had expected it to provide a boost in the medium to long run," said analyst Li Xiaochang at Changjiang Securities.

"We're also seeing lingering effects from the scandal surrounding Zhou Zhengyi."

Flamboyant property tycoon Zhou is under house arrest and being investigated for suspected improprieties at his flagship conglomerate Nongkai Development (Group) Co, state media reported.

Machinery maker Xugong Science and Technology, linked to Zhou, was the top A share decliner in Shenzhen with a 9.00 percent drop to 8.19 yuan (US$0.986). It has lost more than half its value over the past weeks.

Zhou-linked stationery maker Daying Modern Agricultural was suspended from trade yesterday after newspapers questioned connections between Daying's owners and Zhou.

Analysts said some investors preferred to remain on the sidelines, concerned about more initial public offerings in the second half of this year, after a slowdown over the past few weeks due to the outbreak of SARS (severe acute respiratory syndrome).

"Punters are worried that an increase in IPOs will drain market liquidity," said Changjiang's Li.

China's market indices have plunged nearly 30 percent since hitting their peak in June 2001 due to frequent A-share initial public offerings and other negative factors such as poor corporate earnings, analysts said.

Losing ground were auto shares which had been favored since late last year due to an industry boom buoyed by fast domestic economic growth, analysts said.

Minivan maker Jiangling Motors was the biggest B-share decliner in Shenzhen with a 2.5 percent fall to HK$5.07 (US$0.671) after rising more than 40 percent so far this year.

On the foreign exchange market, China's yuan ended down one notch against the dollar at an intraday low of 8.2771 yesterday, dealers said.

The yuan touched an intraday high of 8.2768, moving narrowly near the strong end of a tiny 8.2760 to 8.2800 band enforced by the central People's Bank of China. Turnover was a moderate US$510 million, although that was up from US$420 million on Wednesday.

"Strong trade surpluses and foreign investment have ensured a steady inflow of dollars into the market, keeping the yuan at a high level," said a domestic bank dealer.

The yuan is not freely convertible on the capital account and its movements within the government-set range are decided by China's foreign trade performance and overseas investment.

China's actual foreign direct investment rose year-on-year 39.5 percent to US$5.45 billion in May, while exports jumped 37.3 percent in the same month, creating a surplus of US$2.23 billion for the month, official figures showed.

The yuan weakened slightly to 7.0407 per 100 Japanese yen from Wednesday's 7.0202 and softened against the euro to 9.7303 from 9.6869. It rose a notch against the Hong Kong dollar to 1.0609.

(China Daily June 13, 2003)