Shares of China's top three banks dropped in Shanghai yesterday despite the government buying their stocks to boost prices.

Industrial and Commercial Bank of China, China Construction Bank and Bank of China said yesterday in separate filings to the Shanghai Stock Exchange that Central Huijin, a government investment arm, bought 2 million yuan-backed A shares on Tuesday in each of them in the secondary market to bolster their price.

Central Huijin will also boost its stake in the three banks in the coming 12 months, the lenders said in their statements.

Central Huijin is an arm of China Investment Corp, the country's sovereign wealth fund. The company is the main player in China's banking reform to bail out state owned banks.

ICBC, the country's biggest bank, ended at 4.29 yuan (63 US cents) yesterday, down 1.38 percent. CCB tumbled 1.72 percent to 4.58 yuan. BOC slipped 1.09 percent to 3.64 yuan. The benchmark Shanghai Composite Index inched up 0.70 percent to end at 2,216.81.

Yesterday's decline put an end to the three days of rises for the banks. The banking sector has risen an average 19 percent since September 18 when the government announced an unprecedented package of moves including Central Huijin's purchase plan and the scrapping of the share purchase stamp duty to stimulate the flagging stock market.

From its peak in October up to September 18, the Shanghai market has lost 69 percent.

The investment agency's purchase is the first time in the nearly 18-year history of China's stock market that the government has used its money to buy a listed firm's shares to shore up the market.

"The government-controlled agency's buying showed the central government's positive intervention to stabilize the market and to help revitalize market confidence," said Guosen Securities in a research note yesterday.

"While the purchase of 2 million shares is limited in scale this time, a bigger purchase in the future when prices fluctuate wildly is possible," the note said.

The domestic stock market surged for two days after the government's intervention, which was followed by a one- day correction and yesterday's higher close.

Separately, China Coal Energy Co, a state-controlled company, said yesterday its parent has raised its stake by buying 4.05 million shares.

(Shanghai Daily September 25, 2008)