China shares end up 2.6 pct as institutions return

SHANGHAI Dec 24 (Reuters) - China's key stock index ended up 2.59 percent on Thursday, partly led by China State Construction Engineering Corp (601668.SS) on news that its parent was buying more shares in the listed unit, as institutional investors came back to the market after winding up their year-end settlements.

The Shanghai Composite Index .SSEC finished at 3,153.410 points, scoring its biggest daily percentage gain this month and regaining the key 125-day moving average, now at 3,098.

The index was also boosted as prospects for China's economic recovery offset the negative impact of heavy new share supplies.

Cash calls for year-end settlement by institutions, including mutual funds and brokerages, had contributed to a one-month market fall of nearly 10 percent until Tuesday, although the fall was also driven by an official campaign to clamp down on excessive asset prices, including adding share supplies.

"Institutional investors typically push share prices up in the final few trading days of the year for better year-end book value, although they also typically only trade lightly at this time of year," said a senior trader at a major Chinese brokerage.

Traders said they expected the market to stage a slow but steady rally for the rest of this year, adding, however, that the key index should encounter stiff resistence at the psychologically important 3,300-point level.

China State Construction, the country's top building company, was one of Thursday's most actively traded stocks, ending up 1.77 percent at 4.61 yuan after its parent bought 5 million additional shares in the listed unit and promised to buy more over the next 12 months to support the share price.

Some other shares that have newly listed this year, including China Merchants Securities (600999.SS) and Metallurgical Corp of China (601618.SS), have fallen below their initial public offer prices during the market downtrend of the past few weeks. ($1 = 6.83 yuan) (Reporting by Lu Jianxin and Edmund Klamann)