Chinese regulators have completed a rare takeover of the country's fifth-largest brokerage, China Southern Securities, which analysts said on Monday needed a massive cash injection to stay afloat.

The China Securities Regulatory Commission and the government in the southern financial hub of Shenzhen -- where the brokerage is based -- took the reins of the trading house on Friday, citing problems with the management.

The market watchdog has suspended its board members and senior management and is preparing to launch a probe amid market speculation of operational irregularities.

"As of yesterday, the takeover team has successfully completed its takeover," the official Shanghai Securities News said on Monday. "China Southern Securities is currently in a stable situation and operations and management normal."

It said the team had been working "night and day" since Friday to ensure the operation went smoothly.

The newspaper cited an official in charge as assuring employees and investors of the company's financial stability.

Analysts had said the fall from grace of the national player, once a source of pride for the boomtown bordering Hong Kong, would hammer markets when they re-opened.

But stock reaction was muted on Monday with major newspapers devoting front-page space to reassurances the trading house was functioning normally.

China's benchmark Shanghai composite index leapt 3.37 percent to end at a seven-month high of 1,568.353 points, maintaining a technical rebound over the past seven weeks.

WANTED: CASH INJECTION

Executives at Southern Securities and CSRC officials were not immediately available for comment.

Analysts said the trading house urgently needed an infusion of cash, and expected the government to foot part of the bill.

Hong Kong's Beijing-backed Wen Wei Po reported on Monday the Chinese government could inject eight billion yuan (US$966.5 million) into the brokerage to help save 2,500 to 3,000 jobs.

"China Southern Securities has debts of more than 10 billion yuan," said analyst Zhai Bin at Merchants Securities, echoing other analysts' estimates. "Without fund injections, the company can't cope with losses."

China's embattled securities sector is coping with a stock market that has slid 30 percent since peaking in mid-2001, hit by factors such as a large overhang of non-traded state shares.

Official figures showed 98 of the country's 131 securities houses made a combined loss of 4.1 billion yuan in the first nine months of 2003.

"Many Chinese brokerages set up in the early days of China's stock market have the same historical problems," said Luo Xianwen, head of investment banking at the Northern Securities.

China Southern, as one of the most active houses and which had been in talks with Goldman Sachs and HSBC Holdings on securities ventures, is the most prominent victim of a government-led clampdown on the industry launched in 2001.

Regulators have since shut a handful of tiny brokerages and helped institute measures to aid cash-strapped players raise funds. But it has shied from direct involvement.

China typically asks better-managed brokerages to take over waning peers to avoid market volatility sparked by such closures.

Founded in 1992, China Southern Securities is the country's fifth-largest brokerage with a registered capital of 3.45 billion yuan. The government of Shenzhen -- a Special Economic Zone granted wide autonomous powers to set policy -- is one of its three largest shareholders.

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