China's shares closed higher yesterday as investors sought bargains in securities brokerages and banks after senior leaders pledged to continue a proactive monetary policy, brokers said.

The benchmark Shanghai composite index, grouping hard-currency B shares for foreigners and yuan-denominated A shares, finished 0.31 per cent higher at 1,408.415 points.

The Shenzhen market gained 3.29 to 3,278.

Hard-currency B shares lost ground. Shanghai's B shares inched down 0.248 to 111.761. Shenzhen's B shares closed down 0.39 to 268.85.

China's top leaders decided at an economic meeting on Monday to maintain a proactive fiscal policy next year to help expand domestic demand.

Brokers said investors expected such an expansionary policy would benefit the financial industry and help boost the bottom line of companies in the sector.

Hongyuan Securities Co Ltd was one of yesterday's star performers, with a 8.24 per cent jump to end at 7.09 yuan (86 US cents).

Shenzhen Development Bank Co Ltd closed up 3.95 per cent at 8.69 yuan (US$1.10), while China Merchants Bank edged up 0.93 per cent to 9.79 yuan (US$1.20).

Brokers said financial stocks looked like a bargain after suffering heavy losses over the past few months due to expansion plans and a government-ordered tightening of bank lending.

Hongyuan Securities is still down 25 per cent since early September due to investor worries that its issue of 90 million additional shares that month would dilute the brokerage's earnings.

China Merchants Bank has also fallen nearly 7 per cent since late August, when it announced a plan to issue 10 billion yuan (US$1.20 billion) in convertible bonds, the largest issue of the investment tool in the country.

Technical buying has pushed the Shanghai composite index up 6.98 per cent since last Wednesday. Before the rebound, the index had lost nearly 20 per cent since mid-April due to a slew of negative factors, including too many stock offers.

"The market is likely to stage technical rebounds in the near term, led by stocks which have dropped sharply over the past few months," said analyst Chen Jinren at Huatai Securities.

But analysts also cautioned the market had yet to fully recover from its weakness over the past few months and said that the Shanghai index was likely to find resistance at the psychologically important 1,450-point level.

On the foreign exchange market, China's yuan ended unchanged versus the US dollar at 8.2771, remaining at the stronger end of its managed trading range.

Turnover for yesterday was temporarily unavailable, but fell to US$660 million on Monday. The yuan closed firm to 7.5669 against 100 Japanese yen from 7.5995 and strengthened versus the euro to 9.7632 from 9.8588.

Shanghai copper futures ended mixed yesterday, cheered by the London Metal Exchange (LME) hovering at the US$2,000 mark, but sentiment remained shaky in the wake of recent market volatility, traders said.

Shanghai's most active June contract fell 30 yuan (US$3.60) to end at 20,550 yuan (US$2,482) a ton, while some contracts dropped between 20 yuan (US$2.40) and 110 yuan (US$13) and others rose between 10 yuan (US$1.20) and 170 yuan (US$21). Volume inched up to 123,334 lots from Monday's 118,112 lots.

"LME's Monday gains have clearly supported prices here today but this still isn't a fundamental turnaround time for the market," one Shanghai trader said.

"Of course we're seeing more stable behaviour in what have recently been volatile markets, but I think prices will fall in the short term before things settle down," another trader said.

LME three-month copper was quoted at US$1,996/$2,000 a ton by 0330 GMT in yesterday's Asian trade, almost unchanged from a close of US$1,999/US$2,000 on Monday.

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