China stock rally fizzles out by midday

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SHANGHAI, Jan 23 (Reuters) - An early rally in China's stock market fizzled out by midday on Wednesday as large-cap shares resumed falling, led by Bank of China (601988.SS). The Shanghai Composite Index .SSEC, which plunged 7.22 percent on Tuesday, surged as much as 3.14 percent in the opening minutes on Wednesday as Asian markets recovered after the U.S. Federal Reserve's big interest rate cut.

But the Shanghai market soon began pulling back and the index ended the morning down 0.59 percent at 4,533.062 points, underperforming regional markets. Losing Shanghai stocks slightly outnumbered gainers by 429 to 419.

"The market has to consolidate at this level for a while, and a big rebound is unlikely. After such a tumble, most investors have turned cautious and the outlook is still uncertain in the short term," said Zhang Qi, analyst at Haitong Securities.

Turnover in Shanghai A shares stayed active at 78.2 billion yuan ($10.8 billion) against Tuesday morning's 84 billion yuan.

Bank of China's A shares slid 8.32 percent to 5.73 yuan -- although that was catching up to the bank's Hong Kong-listed H shares (3988.HK), which plunged 8.60 percent on Tuesday while the A shares were suspended.

On Tuesday night, Bank of China released a statement saying its post-tax profit rose last year, rejecting a newspaper report that its 2007 earnings might drop because of its exposure to U.S. subprime loans. (For details, click on [ID:nSHA62570])

Most other banks were flat to lower, with Bank of Communications (601328.SS) up just 0.31 percent to 12.99 yuan after it estimated 2007 net profit rose at least 60 percent. (For details, click on [ID:nSHA28244])

But Bank of Nanjing (601009.SS) outperformed, climbing 1.29 percent to 16.52 yuan, after saying its net profit rose at least 50 percent last year. (For details, click on [ID:nSHA66407])

Analysts said some institutional investors were prepared to buy back banks and other Chinese blue chips after the index had lost 17 percent over the past six trading days.

But they said concern about tightening Chinese monetary policy and the market's ability to absorb heavy new supplies of shares was hindering any rebound.

The index's slide on Tuesday broke important technical support at 4,778-4,812 points, its November and December lows, which have become resistance.

Ping An Insurance (601318.SS)(2318.HK) showed some signs of stabilising. It fell 3.16 percent to 77.04 yuan, after plunging its 10 percent daily limit on both Monday and Tuesday. The slide was caused by its plan for a giant $19 billion domestic stock offer which the market fears it may not be able to absorb.

Many investors believe the government may have encouraged recent announcements of big stock offers by Ping An and other companies in order to cool the stock market, and this concern will limit any market rebound, analysts said.

"If the index cannot stabilise around 4,500 points, it will have to seek support at around 4,200 points. So any rebound may just be met by selling," said Qian Qimin, analyst at Shenyin & Wanguo Securities.

Jiangxi Copper (600362.SS), resuming trade after a one-week suspension, tumbled its 10 percent daily limit to 60.17 yuan. Its Hong Kong listed H shares (0358.HK) plunged nearly 30 percent after it proposed issuing up to 6.8 billion yuan worth of bonds with warrants. (For details click on [ID:nHKG56823])

Zhuhai Huafa Industries (600325.SS), the first listed real estate firm to post 2007 earnings, rose only 0.79 percent to 48.30 yuan after saying its net profit soared 145 percent last year, and announcing a plan for a 10:10 bonus share issue and a 1 yuan cash dividend.

GD Power Development (600795.SS), a major electricity and heat supplier, climbed 2.71 percent to 14.80 yuan after saying 2007 net profit surged 68 percent.

Two new shares enjoyed strong debuts in Shenzhen, which was a positive omen for this week's large IPO by China Coal (1898.HK).

Xinjiang Guotong Pipeline 002205.SZ soared 297 percent to 30.55 yuan from its IPO price of 7.69 yuan, beating analysts' expectations for a maximum listing price of about 25 yuan.

Zhejiang Hailide New Material (002206.SZ) surged 124 percent to 32.88 yuan from its IPO price of 14.69 yuan, exceeding expectations for a trading range of 27-29 yuan. ($1 = 7.24 yuan) (Reporting by Claire Zhang, Editing by Andrew Torchia)