Stocks rose on Friday despite a hike to interest rates, pushing the main indicator up 1.15 percent.

Analysts said the rate hike came as the A-share market stabilized after two days when the stock market bounced more than 2 percent in each direction. The hike is not expected to negatively impact the market, analysts said.

The People's Bank of China raised the one-year benchmark deposit rate by 27 basis points to 4.14 percent while increasing the one-year lending rate by 18 basis points to 7.47 percent on Friday. There was a 9 basis point cut in the demand deposit rate in a bid to encourage long-term savings.

The Shanghai Composite Index rose 58.24 points to close at 5101.78, with 717 out of 909 stocks closing higher. The Shenzhen Component Index jumped 1.1 percent to close at 16808.68.

The turnover on the two bourses amounted to 152.2 billion yuan, up 19 percent from the day before.

"The stock market is now in the process of rebounding and the trend will not be easily broken," said Wu Feng, an analyst at TX Investment Consulting Co Ltd. The Shanghai Composite Index has fallen more than 9 percent in the past month.

"The authority has announced a set of measures to stabilize the A-share market, such as the expansion of QFIIs (from $10 billion to $30 billion), and the nod to mutual funds to raise money again after freezing them for a period of time," said Frank Gong, head of research at Morgan Stanley Greater China.

"The capital raised from the new mutual fund subscription is expected to flow into the market soon," Wu said.

Large-caps performed well in Friday's trading. PetroChina rose 0.13 percent to close at 30.54 yuan, and China Aluminum jumped 3.37 percent to 38.98 yuan. Liaoning Publishing soared 329.5 percent in its Shanghai debut on Friday.

Meanwhile, a recent central bank survey shows that investor enthusiasm for stocks has cooled while passion for bank deposits increased in the fourth quarter.

According to the survey, passion for stock investments dropped 8.5 percentage points from the third quarter to 35.8 percent this quarter, reversing a four-quarter-long trend, while people's passion for bank deposits climbed 4.9 percent from last quarter to 30.2 percent.

"Monetary tightening and an expected slowdown in the global economy will present a more challenging environment for China's equity markets in 2008," said Jing Ulrich, chairman of China Equities at JPMorgan Securities.

(China Daily December 22, 2007)