China's shares closed flat yesterday with investors dumping loss-makers, worried about a liquidity crunch after a giant share offer by the firm spearheading the country's massive Three Gorges Dam project.

The benchmark Shanghai composite index, grouping hard-currency B shares for foreigners and yuan-denominated A shares, dipped 0.01 per cent, or 0.138 point to 1,369.325 points.

The Shenzhen sub-index closed up slightly by 0.64 per cent, or 20.2 points, to 3,194.71 points.

Yangtze Electric Power Co Ltd said yesterday it would issue 2.326 billion A shares in early November to raise a net 9.83 billion yuan (US$1.19 billion), China's fourth largest IPO ever.

It had planned to issue shares in September to help fund the US$25 billion Three Gorges Dam project, but regulators forced it to put off the sale as the market had been suffering from an abundance of stock offers in the preceding weeks.

Its impact on yesterday's market was mitigated because news of the IPO had been circulating for weeks, analysts said.

"Still, the market is likely to extend losses this week as investors will adjust their holdings to buy Yangtze Power's new shares," said analyst Simon Wang at Xiangcai Securities.

Dalian Thermal Power Co Ltd was one of the top decliners in Shanghai, dropping 8.73 per cent to 6.06 yuan (73 US cents), after it posted a larger loss for the third quarter versus the same period in 2002.

Loss-making alcohol producer Quanxing Co Ltd fell its daily limit of 10 per cent to 4.29 yuan (52 US cents).

Institutional investors typically cash out of underperformers from late October as they need to prepare for year-end book settlement, squeezing liquidity in a depressed market already lacking funds, analysts said.

Despite rallies on other Asian bourses, the Shanghai composite index has shed 16 per cent since mid-April.

In comparison, neighbouring Hong Kong has gained 40 per cent in the same period.

Many analysts said they expected the Shanghai index to fall to test the year's low of 1,311.684 points set on January 6.

Tech counters continued to drop after a pledge by regulators to promote the launch of a NASDAQ-style second board, which would drain money from the main board, analysts said.

Chip maker Shanghai Belling fell its daily limit of 10 per cent to 9.07 yuan (US$1.09), while PC maker Tsinghua Unisple declined 9.5 per cent to 10.67 yuan (US$1.29).

Baoshan Iron and Steel Co Ltd, the listed arm of China's largest steel maker, outperformed the market, jumping 2.03 per cent to 6.02 yuan (72.70 US cents).

The company will issue third-quarter results later this week and analysts predicted its net profit would soar as a surging economy drives construction and car sales and props up product prices.

China's yuan ended a notch weaker versus the US dollar at 8.2768 yesterday, near the stronger end of its managed trading range.

Former US Commerce Secretary Michael Kantor said yesterday China is right to resist a quick revaluation of its currency, a move that could cost jobs and rock its already rickety financial system.

Addressing a financial forum in Beijing, Kantor said a rapid revaluation of the renminbi is not in the best interests of China, or the best interests of the Asian economy or the best interests of the world economy.

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