The benchmark Shanghai composite index, grouping hard currency B shares for foreign investors and yuan-denominated A shares, finished 0.26 percent higher at 1,525.439 points, while the Shenzhen sub-index also gained 17.23 points to finish at 3395.92.

Steel stocks led in volume as analysts predicted China's booming auto and construction sectors would prop up bottom lines, a factor that has helped such shares stay firm this year.

Index heavyweight Baoshan Iron and Steel, the listed arm of the country's largest steel maker Baosteel, was the most active stock, closing 0.92 percent firmer at 5.48 yuan (66 US cents). The stock has risen 33 percent since the start of 2003.

Baosteel has forecast a net profit rise of more than 50 percent year-on-year in the first half of this year, though analysts predicted its earnings per share should more than double.

Panzhihua Steel became yesterday the first steel firm to post interim results, saying six-month net profits rose 41 percent year-on-year, but its shares ended up only 0.01 percent at 7.27 yuan (88 US cents) after a bout of profit-taking, brokers said.

"Panzhihua's strong earnings sparked widespread expectations of good results for other steel firms, making them the market's bright spot," said Xia Shiming, an analyst at Jiulian Securities.

Ma'anshan Iron and Steel closed up 1.6 percent at 4.44 yuan (54 US cents), while smaller counterpart Lingyuan Steel jumped 5.17 percent to 8.75 yuan (US$1.06).

The market has enjoyed a mild 2.7 percent rally since the start of July as investors bought into potential targets under a landmark Qualified Foreign Institutional Investors (QFII) scheme, which admits foreigners into China's main stock and debt markets.

But investors were also cautious about building heavy positions during the interim reporting season, analysts said. More than 1,200 listed firms are required to post results from now till August 31, but most would report in August.

Analysts said the Shanghai composite index should move narrowly between 1,500 and 1,550 points in the near term.

Huiquan Brewage was yesterday's biggest decliner, falling 5.38 percent to 8.44 yuan (US$1.02). It forecast an earnings drop of more than 50 percent year-on-year in the first half of 2003.

China's yuan closed unchanged against the US dollar at 8.2771 yesterday, sticking to the stronger end of its managed trading range.

The yuan was sandwiched between 8.2769 and 8.2771 throughout the session, near the firmer end of a razor-thin band of 8.2760 and 8.2800 that the central bank usually enforces. Turnover fell to a moderate US$610 million from US$720 million on Monday.

Zhou Xiaochuan, governor of the central bank, said in a report issued on Monday that China would continue to "perfect" its exchange rate mechanism.

One bank dealer said that suggested Beijing would pay more attention to reforming its exchange rate system. However, she said: "I don't expect to see changes in the short run as the adjustment will be made very carefully and gradually, to avoid derailing economic growth and social stability."

The yuan is not freely convertible on the capital account and its movements within the government-set range are decided mostly by trade and foreign investment.

In the futures market, Shanghai copper futures rose yesterday, buoyed by the London Metal Exchange hitting five-week highs, but overall sentiment was cautious after the LME fell back in inter-office trade, traders said.

The most active November 2003 contract closed 130 yuan (US$15.70) higher at 17,690 yuan (US$2,137) per tonne. Other contracts ended from 90 to 210 yuan (US$10.8-US$25.4) higher with combined volume rising to a healthy 149,920 lots from Monday's thin 46,180 lots.

(China Daily July 16, 2003)