A wide rally pushed Shanghai's key stock index higher in the morning session today as investors showed confidence in the market after the watchdog said it would tighten scrutiny in approving additional share sales.

The Shanghai Composite Index, which tracks yuan-denominated A shares and hard-currency B shares, added 2.34 percent, or 99.26 points, to 4,337.44.

Gainers in the Shanghai market outnumbered losers 724 to 111 while 17 were unchanged.

The Shenzhen Composite Index, which covers the mainland's smaller stock market, increased 1.86 percent, or 24.53 points, to 1,346.86.

China's securities regulator said on Monday night it will "strictly" examine applications from listed companies seeking to sell additional shares after investors expressed concern that rising supply triggered recent sell-offs.

Companies should "prudently" consider the amount, timing and affordability of offerings before deciding on secondary fundraisings, the regulator said.

China Merchants Bank Co led lenders higher this morning after dropping to an almost seven-month low on concern a two-year share lock-up will spark a sell-off by institutional investors.

It jumped 5.47 percent, or 1.66 yuan (23 US cents), to 32.02 yuan.

Shanghai Automotive Industry Corp, CNOOC Investment Co and 75 other institutional investors were today allowed to sell 2.53 billion yuan-denominated shares, representing 17 percent of total outstanding shares of the bank.

China's publicly traded firms started a mandatory program in 2005 to make more than US$200 billion of mostly state-owned equity tradable. Under the reform, most holders of non-tradable shares committed to hold their stakes for at least two years while the rest agreed to a lockup period of three years.

Merchants Bank implemented the reform in February 2006. China Merchants Group Co and 12 other institutional investors still have 4.8 billion non-tradable shares locked up until next year.

Elsewhere, China Eastern Airlines Corp, the nation's third-largest carrier, gained 1.45 percent, or 0.21 yuan, to 14.71 yuan. Its board rejected an offer from the parent of Air China Ltd and would instead continue pursuing a tie-up with Singapore Airlines Ltd, according to a statement to the Hong Kong stock exchange. Air China gained 1.53 percent, or 0.28 yuan, to 18.57 yuan.

Guangdong Midea Electric Appliances Co may pay 1.68 billion yuan in cash for 24 percent of Wuxi Little Swan Co, a washing machine manufacturer, the Shanghai Securities News reported today, citing people it didn't identify. Midea Electric rose 1.8 percent, or 0.84 yuan, to 46.69 yuan on February 15 when its shares were last traded before it was suspended.

(Shanghai Daily, February 27, 2008)