China's benchmark stock index staged a mild technical rebound yesterday, led by bank shares which had fallen sharply on investor worries a government tightening of bank lending might hit business, brokers said.

The Shanghai composite index, grouping hard-currency B shares for foreigners and yuan-denominated A shares, closed up 0.63 percent at 1,390.174 points after a two-month market slump pushed it to the lowest close in eight months on Monday.

Shenzhen sub-index rose 0.54 percent to 3,092 points yesterday.

The Shanghai B-share index boosted 1.165 percent to 99.398 points, while its counterpart in Shenzhen was up 0.41 percent to 228.66 points.

China Merchants Bank Co Ltd was one of Tuesday's most active counters, ending up 1.74 percent at 9.36 yuan (US$1.13) after heavy losses over the past four weeks due also to its plan to issue convertible bonds.

The lender is still down 11 percent since August 26 when it said it would issue 10 billion yuan (US$1.21 billion) in five-year bonds convertible to its A shares in China's largest issue of the investment instrument.

"Yesterday's rise was purely a technical rebound, while sentiment remained cautious after recent market falls," said East Asia Securities trader Lu Wei.

Analysts said that strength in these oversold financial stocks is not enough to lift the broader market from its bearish mood, as investor sentiment continues to be influenced by ongoing fund-raising activities.

Companies that have recently unveiled their fund-raising plans were among the biggest losers of the day.

Xinxing Ductile Iron Pipes Co Ltd fell 0.57 yuan (US$0.07) to 8.99 yuan (US$1.09) after saying that its shareholders have agreed to issue up to 120 million additional A-shares.

Xiamen C & D Inc, whose 90 million additional A-shares became tradable yesterday, shed 0.68 yuan (US$0.08) to 8.44 (US$1.02).

Before the rebound, the Shanghai composite index had fallen more than 10 percent since mid-July, hit by a slew of factors such as too many stock and convertible bond offers, which sparked worries over a shortage of funds in the market, brokers said.

Analysts were mixed over the near-term outlook, with some saying the recent slump had eased selling pressure and the stock market could continue the rebound in the short run.

But others said they believed the index could drop another five percent to test a year-low of 1,311.684 points set on January 6 before the market closes from October 1-7 for the National Day holiday period.

The other four listed banks also outperformed the broad market yesterday on technical buying, brokers said.

Shanghai Pudong Development Bank Co Ltd closed up 4.39 percent at 9.98 yuan (US$1.21) and Huaxia Bank Co Ltd rose 1.94 percent to 7.35 yuan (US$0.89).

China's yuan ended a notch firmer versus the US dollar at 8.2772, at the stronger end of its managed trading range.

The yuan moves in a band of 8.2760 to 8.2800 enforced by the central bank.

Turnover rose slightly to US$530 million from US$500 million on Monday. The yuan weakened to 7.4015 against 100 Japanese yen from 7.3553 and softened versus the euro to 9.4979 from 9.4700.

(China Daily September 24, 2003)