The bank's A shares, off limits to foreigners, closed down 1.71 per cent after 134 million stocks from its IPOs (initial public offerings), one of the country's largest ever, were allowed onto the market.

The Shanghai composite index, tracking A and B shares, slid 12.480 points, or 0.76 per cent, to close at 1634.566, while Shenzhen's also edged down 24.34 points, or 0.72 per cent, to 3360.75.

The Shanghai B-share index declined 0.721 points, or 0.48 per cent to close at 149.602 points. Shenzhen's ended 0.31 per cent lower at 240.90.

Turnover was a meager US$7.367 million on Shanghai's B-share market and HK$43.843 million (US$5.62 million) in Shenzhen.

Hard-currency B shares are available to foreign investors.

"The Merchants Bank performance sparked more selling in the already weak market," MF Securities analyst Yang Weidong said.

China's stocks have been falling since June 24, when the government scrapped an unpopular scheme to sell huge State-owned stakes in listed companies through the stock market.

Brokers blamed the sluggish market on a lack of fresh government aid to the policy-driven money markets and poor corporate interim earnings during a reporting season that ends this month.

More than 10 per cent of China's 1,200 listed companies have forecast first half losses as intensifying competition in most glutted domestic industries cut into bottom lines.

Textile maker Victor Onward topped the fallers list in Shenzhen with a 3.31 per cent drop to HK$5.55 (71 US cents). The company reported on Saturday its first half net profit was down 31 per cent compared to the same time last year.

The B shares in industrial sewing machine maker Shanggong fell 0.77 per cent to US$0.772 after the company said at the weekend interim net profit had dropped 91 per cent for the year.

Brokers said they expected the indices would head further south in the near term as the bearish investor mood looked likely to persist.

"A market that attracts few large funds is very likely to do worse," said analyst Shen Yufei of CITIC Securities.

The yuan weakened slightly against the US dollar yesterday as commercial banks bought more of the hard currency to meet higher demand from domestic importers, dealers said.

The yuan ended at 8.2768 to one dollar, down from Friday's 8.2766. Turnover, a massive US$730 million on Friday, was not immediately available.

Trade flow is the key driver of the yuan's value as the currency is fully convertible only on the current account.

Dealers said they expected the yuan to stay firm in the near future as the dollar supply from domestic exporters was likely to remain solid.

The yuan is expected to continue trading near the strong end of its hair-thin band of 8.2760 to 8.2800, which the central bank generally enforces to secure economic stability.

Officials said they would widen the yuan's band gradually to cope with changes in China's balance of payments after the country became a World Trade Organization member in December, but they have given no timetable for the move.

(China Daily August 13, 2002)