China's shares closed at their lowest point in over nine months yesterday, as institutions trimmed stakes in large-caps to raise cash ahead of a giant stock offer for the Three Gorges Dam project.

The benchmark Shanghai composite index, grouping hard-currency B shares for foreigners and yuan-denominated A shares, slid 1.24 percent to 1,344.633 points. It was the lowest close since January 7 when it ended at 1,332.061.

The Shenzhen sub-index dropped by 0.94 percent to 3,163.02.

"Share prices of large caps - which are held mostly by institutions - suffered from a lack of funds in the market," said analyst Song Huaisong at Fujian Xingye Securities.

"Chinese institutions typically need to prepare cash for annual book settlements at the end of the year, so they have few funds with which to push those shares up," Song said.

Index heavyweight China Southern Airlines Co Ltd, which operates the country's largest commercial fleet, slid 1.21 percent to 4.08 yuan (49.29 US cents) after it warned of a potential sharp dive in full-year earnings.

Sinopec Corp, the market's largest company by capitalization, was one of the most active counters, dropping 1.86 percent to 3.69 yuan (44.58 US cents) despite reporting a forecast-beating 36 percent rise in third-quarter earnings.

"Despite rallies in the Hong Kong bourse and the futures markets, the Chinese stock market kept slumping and sidelined investors," said analyst Zhou Lin at Huatai Securities.

A weak stock market has driven cash into the futures markets, pushing Shanghai copper to record highs, brokers said.

The Shanghai index has shed 17.6 percent since mid-April, compared with a 40.7 percent rally in neighbouring Hong Kong. It was hit by negative factors from a rash of stock offers to a government-ordered tightening of bank lending.

Institutional investors unloaded other large caps to raise funds to buy into a giant stock offer by a firm spearheading the Three Gorges Dam project, brokers said.

Yangtze Electric Power Co Ltd plans to issue 2.326 billion A shares in early November to raise a net 9.83 billion yuan (US$1.19 billion) to help fund the US$22 billion Three Gorges Dam project.

It would be the fourth-largest initial public offering on the mainland after Sinopec, mobile carrier China United Telecommunications Corp Ltd and China Merchants Bank.

Yangtze Electric had planned to issue shares in September but regulators ordered it to delay the sale as the market was already straining under other offers.

A shortage of liquidity is likely to worsen in the near term as Chinese institutions typically need to prepare cash for annual book settlements at the end of a year, analysts noted.

Taxi operator Qingsheng Holdings was Thursday's star performer after Hong Kong investment firm Interchain Holdings Ltd acquired a 12.9 percent stake in it.

China's yuan ended one notch weaker versus the US dollar at 8.2767 yesterday, near the stronger end of its managed trading range.

Strong prices have triggered more offers for prompt copper in China's copper retailing base of Shanghai, traders in China said yesterday.

Prices of most copper contracts on the Shanghai Futures Exchange hit limit-up as investors were bullish about copper prices on the benchmark London Metal Exchange (LME), traders in Shanghai said.

The most active Shanghai April copper rose 530 yuan (US$64) to 21,290 yuan (US$2,571) a tonne.

"Investors believed the overnight rise in the LME indicated the end of a correction on copper, which would start rising," a trader for a Chinese futures house said.

(China Daily October 31, 2003)