Airlines led Shanghai shares to end slightly higher yesterday, the first trading day of the year, after the yuan rose to the strongest since a peg to the US dollar was scrapped in 2005.

The Shanghai Composite Index, which tracks yuan-denominated A shares and hard-currency B shares, added 0.21 percent, or 11.25 points, to close at 5,271.81.

Turnover in the Shanghai market reached 133 billion yuan (US$18.22 billion). Gainers outnumbered losers 699 to 63, with 84 stocks unchanged.

The CSI 300 Index, which tracks yuan-denominated A shares listed on the mainland's two exchanges, edged up 0.88 percent, or 46.83, to 5,285.10 points.

Air China, the country's biggest carrier by market value, jumped 8.05 percent to 29.65 yuan and China Southern Airlines, the largest by fleet size, rose 2.65 percent to 28.68 yuan.

Airlines stood to gain from the yuan's higher close against the US dollar yesterday when it ended at 7.2934, the strongest level since the greenback peg was scrapped. The stronger yuan can lower the value of carriers' debts that are denominated in foreign currencies.

The stronger yuan also benefited real estate companies, with Shanghai-based Shimao Property Co jumping 9.85 percent to 22.52 yuan and Beijing North Star Company ending 10 percent higher at 15.58 yuan.

"Investors focused on Olympic-related stocks and small and medium caps, which will continue to gain for a while, but over the middle- and long-term, blue chips are still good choices," said Sheng Xi, an analyst at Qilu Securities.

Bucking the trend, the financial sector was weak yesterday after China's central bank reiterated its pledge to maintain a "tight" monetary policy in 2008, and to use "balanced" measures to manage the economy and further control liquidity, Zhou Xiaochuan, governor of the People's Bank of China, said on December 29.

China Merchants Bank lost 2.09 percent to 38.80 yuan and Industrial and Commercial Bank of China, the nation's largest lender, shed 0.62 percent to 8.08 yuan.

(Shanghai Daily by Winny Wang January 3, 2008)