China stocks end 1.2 pct higher, led by banks

Published: 01 Sep 2009 23:09:41 PST

SHANGHAI, Sept 2 - China's key stock index closed 1.2 percent higher in shrinking trade on Wednesday, led by the banking sector after slightly better-than-expected August lending data, but technical charts show the index has entered a more sustained downward channel.

The Shanghai Composite Index closed at 2,714.974 points, continuing a small 0.6 percent rise on Tuesday on technically driven buying and positive manufacturing data, which indicated that China's economic recovery was on track.

Minsheng Banking Corp, China's first listed non-state lender, was the day's most active stock, closing up 3.1 percent at 6.38 yuan.

But the index closed lower than the 125-day moving average at 2,763 points, a key technical level, for a third day.

The effective downward breakthrough of this major technical support -- used by investors to delineate between a bull versus a bear market -- means the level now poses a key resistance, indicating more downward pressure for the market in the near term.

"Although the key technical level has been broken, Chinese economic recovery in the second half of the year could keep momentum intact, which may limit room for a further steep drop," said Li Shiming, senior analyst from Xiangcai Securities.

Gaining Shanghai A shares outpaced losers by 578 to 274, while turnover for Shanghai A shares fell to 88 billion yuan ($13 billion), the lowest level since March 16 and down from Tuesday's already thin 101 billion yuan.

The index had fallen to a three-month intraday low early on Tuesday, depressed by worries about new share supplies and a clampdown on bank lending that could constrain the flow of funds into the stock market.