UPDATE 1-China stocks end year up 97 pct, uptrend to slow

(For Hong Kong stock market reports, click [.HK]) (Rewrites with analysis of next year, individual stocks)

By Claire Zhang

SHANGHAI, Dec 28 (Reuters) - China's main stock index fell on Friday as banks and property shares slipped, but it ended this year with a gain of 97 percent, making China one of the world's best-performing markets for a second straight year.

The Shanghai Composite Index .SSEC dropped 0.89 percent on the day to 5,261.563 points, leaving it 14 percent below an all-time high hit in October. In 2006, the index soared 130 percent.

After a tumultuous year in which stocks swung wildly and many reached valuations several times as expensive as foreign equities, investors expect the Chinese market to rise much more slowly in 2008.

Corporate profit growth is expected to slow, perhaps to 25-30 percent next year from an estimated 50-60 percent in 2007, as monetary policy tightens further and companies make smaller profits in the stock market.

Problems in the global economy, especially the credit squeeze in the United States, may also hurt China.

But most analysts think the Chinese market has a good chance of hitting fresh record highs next year, aided by the country's economic boom and corporate restructuring which often involves injections of assets into listed firms by their state parents.

"The uncertainty of global economics and politics is making investors cautious now, but the index may be strong in January and the outlook for next year is not bad," said Zhang Yanbing, analyst at Zheshang Securities.

Investors were encouraged this week by a bullish technical signal. The index broke above its early December high of 5,209.705 points, triggering a double bottom that suggested it had established a floor at the November and December lows. The pattern points up above 5,600 in coming weeks.

Losing Shanghai stocks outnumbered gainers by 534 to 336 on Friday but turnover in Shanghai A shares stayed active at 133.2 billion yuan ($18.2 billion) against Thursday's six-week high of 146.3billion.

Chinese authorities moved to cool the stock market's worst speculative excesses this year. Worried by inflation, which hit an 11-year high in November, they may continue to try to cool asset prices next year, especially in the real estate market. Banks are being told more sternly to restrain lending growth.

But overall, Chinese policy makers were spectacularly successful with the stock market in 2007, encouraging millions of small investors to enter the market and creating an "equity culture" which may sustain economic reforms.

Boosted partly by a flood of new listings, including some by China's biggest companies, the combined capitalisation of the Shanghai and smaller Shenzhen stock exchanges was $4.5 trillion at the end of this year, up from $1.2 trillion a year ago.

AIRLINES SURGE

The biggest bank, Industrial & Commercial Bank of China (601398.SS)(1398.HK), slid 0.97 percent on Friday to 8.13 yuan.

Top property developer Vanke (000002.SZ) dropped 1.60 percent to 28.84 yuan. It is down 14 percent from December's peak, hit by signs that the residential property market is losing steam.

But airlines surged after Reuters quoted industry sources as saying Li Jiaxiang, chairman of Air China (601111.SS)(0753.HK), had been appointed chief of China's civil aviation regulator, the General Administration of Civil Aviation of China.

Li wanted Air China earlier this year to buy a stake in China Eastern (600115.SS)(0670.HK), and although this has not happened, some investors think he may encourage more restructuring and merger activity in the industry. China Eastern shares surged 6.77 percent to 21.29 yuan.

On Jan. 8, China Eastern shareholders, which include the parent of Air China, will vote on a deal by Singapore Airlines (SIAL.SI) and Temasek Holdings to buy a 24 percent stake in China Eastern.

Many analysts think the deal will go ahead, but some see a chance that news of Li's appointment could affect the voting. If the deal is not approved, airline shares could benefit from speculation about a bidding war for a stake in China Eastern.

Among other gainers, Pacific Securities (601099.SS), a small securities firm, had a dramatic debut in Shanghai, soaring 424 percent to 41.92 yuan.

Gold shares outperformed, led by Zhongjin Gold (600489.SS), up 7.74 percent to 114.15 yuan after the Shanghai Futures Exchange said it would start mock trading of gold futures next Wednesday.

Quanjude 002186.SZ, a restaurant chain, jumped its 10 percent daily limit to 59.03 yuan after being suspended for a week. Listed a month ago, it has climbed 60 percent from the opening price on that day, partly because of speculation about a restructuring involving its main shareholder, though it said in a statement on Friday that there was no such plan.

Zhejiang Supor Cookware (002032.SZ) rose its 10 percent daily limit to 49.06 yuan after saying French appliances maker Seb (SEBF.PA) had successfully purchased a portion of the stake which it plans to buy to take control of Supor.

The deal has been complicated by a securities rule which could force the company to delist if its public shareholding falls below a certain level. But Supor said on Friday that the companies would solve this problem through a bonus share issue.

Sichuan Changhong Electric Co (600839.SS) dropped 3.58 percent to 8.63 yuan after saying the securities regulator had declined to approve a share placement. As part of the placement, Microsoft Corp. (MSFT.O) was to have taken a stake of nearly 1 percent through the purchase of 15 million shares at 6.27 yuan.

Sichuan Changhong did not say whether it would revise the placement and seek approval again, and did not make any comment about its future ties with Microsoft. Spokesmen in China for both firms could not be reached for comment on Friday. ($1 = 7.30 yuan) (Reporting by Claire Zhang; Editing by Andrew Torchia)