UPDATE 1-China shares rise after rate hike, property soft

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SHANGHAI, Dec 21 (Reuters) - Chinese stocks rose on Friday as investors decided an earlier-than-expected interest rate hike would do little damage to bank profits, though real estate shares were soft.

The Shanghai Composite Index .SSEC, which began bouncing on Wednesday from near chart support at its late November low of 4,778.727 points, closed 1.15 percent higher at 5,101.779.

Gaining stocks in Shanghai outnumbered losers by 725 to 106, while turnover in Shanghai A shares rose to a fairly active 103.0 billion yuan ($14.0 billion) from Thursday's 87.3 billion yuan.

The rise of turnover to a one-week high was a positive technical signal. Key resistance for the index is the December high of 5,209.705 points, any break of which would trigger a bullish double bottom formed by the November and December lows.

The rate hike, announced after the market closed on Thursday, came several weeks earlier than the market had expected. But a moderate monetary tightening of that size had already been largely priced into stocks.

"The rate hike is not aimed at knocking down stock prices," said Ha Jiming, chief economist at China International Capital Corp, adding that it would not pull large amounts of money out of the market into bank deposits.

Although the central bank raised the benchmark one-year deposit rate by 27 basis points and the one-year lending rate by 18 bps, analysts said banks' profit margins would not necessarily suffer, since the demand deposit rate was actually cut, by 9 bps.

Shares in Industrial Bank of China (601398.SS)(1398.HK), the biggest bank, climbed 1.52 percent to 8.01 yuan as some analysts interpreted the structure of the rate changes as showing authorities wanted to protect banks' profits.

But many property shares, which have been hit this month by signs that the residential real estate market is flagging, resumed weakening. Poly Real Estate (600048.SS) slipped 1.59 percent to 60.52 yuan.

The central bank avoided dampening mortgage demand by leaving loan rates above five years unchanged on Thursday. But analysts think the rate hike, coupled with other lending curbs, will have some impact on developers, especially small ones.

The official Shanghai Securities News on Friday quoted unnamed sources as saying authorities would set a ceiling of 15 percent for bank lending growth in 2008 and enforce it strictly.

That ceiling would be higher than the 14.0 or 14.5 percent which some analysts had feared, but it would still require banks to reduce loan growth somewhat from this year's pace, and property lending could bear the brunt of that slowdown.

Developers are also suffering from slower sales due to a less rosy market outlook. A survey in the Shanghai Securities News on Friday found 54.47 percent of Shanghai residents thought prospects were unfavourable for the city's home prices next year.

Elsewhere, non-ferrous metals shares rose with Aluminium Corp of China (601600.SS)(2600.HK) up 3.37 percent to 38.98 yuan as Shanghai copper and zinc futures surged for a second day.

Recently listed China Railway (601390.SS) jumped 6.22 percent to 10.59 yuan after soaring its 10 percent daily limit on Thursday. Shanghai Securities News reported this week that the firm would play a big role in building a planned railway linking Shanghai and Beijing, a project worth some 100 billion yuan.