China stocks end with worst weekly loss in decade

SHANGHAI (Reuters) - China's main stock index rose on Friday, boosted by property firms and banks, but the index still recorded its largest weekly loss this decade because of unstable foreign markets and tightening monetary policy.

The Shanghai Composite Index .SSEC closed up 0.93 percent at 4,761.688 points on the day. But it plunged 8.08 percent over the week, its largest drop since August 1998.

Losing Shanghai stocks marginally outnumbered gainers by 429 to 419 on Friday. Turnover in Shanghai A shares remained fairly active but shrank to a one-week low of 129.0 billion yuan ($17.9 billion) from Thursday's 148.7 billion.

In the six trading days through Tuesday, the index tumbled 17 percent. Despite its partial rebound in the second half of this week, analysts said investors remained very cautious and an extended rally was unlikely.

"The market is unlikely to hit 5,000 points any time soon -- there are many sales of new shares in the pipeline and liquidity is under pressure," said Qian Xiangjing, analyst at CITIC-Kington Securities.

Added Li Wenhui, analyst at Huatai Securities: "Most investors are still scared that the index will probably hit 4,500 points. It is unlikely to drop below that level, but if turnover keeps shrinking the index will stay sluggish through the lunar new year" in early February.

The index broke important technical support this week at 4,778-4,812 points, its November and December lows, and that area has become resistance. Many traders view the 4,500-point area as support.

Concern over the impact of government policy and heavy supply of fresh equity on the domestic market caused Shanghai's market to dramatically underperform Hong Kong .HSI in the second half of the week, as Hong Kong rebounded in sympathy with Wall Street.

That slashed the average premium of domestic A shares over Hong Kong-listed H shares to 83 percent -- still too high, in the view of some fund managers -- from a record intra-day peak of 113 percent on Tuesday.

BANKS REBOUND

Traders said appreciation of the yuan, which boosts asset values at property firms and banks in particular, encouraged Friday's rally in those sectors, as well as a sense that the stocks had been oversold for the short term at least.

Leading property developer Vanke (000002.SZ) climbed 6.59 percent to 27.00 yuan. A late rally by Industrial & Commercial Bank of China (601398.SS)(1398.HK), the biggest bank, left it up 1.58 percent on the day at 7.06 yuan.

Long-term Chinese bond yields fell sharply on Friday and the yuan hit a post-revaluation high against the dollar for the third straight day, as the markets shifted further towards the view that instead of hiking official interest rates this year, China will rely largely on yuan appreciation to fight inflation.

However, the central bank is still expected to tighten liquidity through quantitative measures such as reserve ratio hikes, while authorities are likely to continue leaning heavily on banks to restrain lending growth. So uncertainty continues to overhang the banking sector, analysts said.

Ping An Insurance (601318.SS)(2318.HK) rose 0.83 percent to 80.59 yuan. But it ended down 18 percent for the week after the company announced a vague plan for a giant $19 billion domestic stock offer which the market fears it may not be able to absorb.

Traders say the stock could rebound strongly if Ping An announces an attractive plan to use the money for a major overseas acquisition. There is considerable speculation that if it does not, either a shareholders meeting next month or the securities regulator will veto the fund-raising plan.

In the meantime, however, uncertainty about the offer is worrying investors, while fund managers were disappointed by the sudden nature of Ping An's announcement.

Among gainers, textile maker Shanghai Sanmao Enterprise (Group) Co (600689.SS)(900922.SS) surged 5.02 percent to 13.40 yuan after saying it expected to post a net profit for 2007, improving from a loss of 116.9 million yuan in 2006, because of a profit on the sale of land.

Yanjing Brewery (000729.SZ) climbed 4.67 percent to 23.97 yuan after announcing a plan to raise about 1.8 billion yuan by placing as many as 86 million new A shares.

China Pacific Insurance (Group) Co (601601.SS) advanced 2.71 percent to 39.81 yuan, after estimating that net profit jumped more than 500 percent last year.

Technology firms related to universities rose sharply on speculation that they could receive more venture capital, after authorities said this week that they aimed to launch a planned Nasdaq-style board in Shenzhen in the first half of this year.

Shanghai Fudan Forward, a hi-tech firm connected to Fudan University, gained 5.33 percent to 13.04 yuan and was up 46 percent on the week. Shanghai Tongji Science & Technology Industrial, connected to Tongji University, jumped its 10 percent daily limit to 10.74 yuan.

Shanghai Dragon (600630.SS), an investment firm, rose 1.96 percent to 10.95 yuan, bringing its gain for the week to 30 percent.

Coal shares surged in the morning because of expectations of strong demand for the 26 billion yuan Shanghai IPO of China Coal Energy Co (1898.HK), which took retail subscriptions on Friday.

But they pulled back in the late afternoon as the government said it was suspending loadings of coal exports from ports to cope with a shortage. Shenhua Energy (601088.SS)(1088.HK) edged down 0.36 percent to 60.53 yuan.

($1 = 7.20 yuan)

(Reporting by Claire Zhang, Editing by Andrew Torchia)