Strong performance of shares of banking firms and bellwether Sinopec helped Chinese stock markets close higher on Friday despite the interest rate hike.

 

The Composite Stock Index on the Shanghai Stock Exchange, which comprises mainly yuan-denominated A shares and foreign-currency B shares, closed at 1440.22 points, up 1.66 percent, the highest since it hit 998 points last June.

 

The major index of the Shenzhen Stock Exchange, the Shenzhen Component Index, was up 6 points to close at 3,848.1 points.

 

Shares of financial institutions gained from the higher interest rate with the Merchant Bank share price going up by 9.9 percent, while most of real estate firm shares were down.

 

The interest rate hike makes the banking sector more profitable, the real estate sector and house buyers will have to pay more for their bank loans for housing projects or mortgage.

 

Cao Weidong, an analyst with the Hexun Information Co., said investors seem optimistic about the market despite the central bank decision on the interest rate hike.

 

China on Thursday announced a 0.27 percentage points hike in the benchmark one-year loan interest rate, according to a central bank statement, as part of its efforts to curb an investment binge and prevent economic overheating.

 

The People's Bank of China said the one-year loan rate will, starting Friday, rise from 5.58 percent to 5.85 percent. There will be a corresponding adjustment to the interest rate charged on loans of other terms.

 

China's economy, fueled by strong investment, soared by a higher-than-expected 10.2 percent in the first quarter, even though a government spokesman one week ago dismissed fears that the world's fastest-growing major economy might be overheated.

 

(Xinhua News Agency April 29, 2006)