Shanghai stocks are set to climb after the weeklong National Day holiday as the lack of new tightening measures during the trading hiatus should encourage investors to build their positions.

But industry analysts warned that the market could face a correction late this month from profit taking and advised investors to concentrate on firms with sound fundamentals.

The Shanghai Composite Index, which covers yuan-backed A shares and US-dollar B chips, rose 1.8 percent over the five sessions ended September 28 to finish at a record 5,552.30.

Turnover amounted to 630.2 billion yuan (US$84 billion) during the previous trading week, compared with 935.9 billion yuan a week earlier, as investors traded cautiously prior to the holiday. Trading resumes today.

"Sentiment is likely to come alive again after the holiday," said Liu Yu, an Orient Securities Co trader. "The index usually rises if no major austerity measures are unveiled and investors buy into blue chips."

Market observers believe that good corporate earnings will continue to support share growth for a majority of domestically listed firms in the fourth quarter, thus helping the benchmark index move up.

By the end of last month, 314 out of the 1,500-odd mainland public companies said they expected profits to improve in the third quarter. Among them, 182 firms estimated net earnings would jump more than 50 percent.

"Quality companies will continue their upside toward the year's end on sustained earnings growth, although the pace may slow a bit," said Luo Tiansheng, a Citic Securities Co dealer. "Banking and property firms will continue to be the key index drivers, even if more tightening polices are implemented."

The People's Bank of China on September 28 raised its forecast for the country's economic growth to 11.6 percent for this year, up from a June estimate of 10.8 percent.

Inflation for 2007 will likely hit 4.6 percent, the central bank said, adding that it will maintain a "moderately tight" monetary policy in the last quarter.

"We are likely to experience a correction of 10 percent to 15 percent in late October if the index keeps going up over the coming two weeks," said Zhu Ming, a Galaxy Securities Co trader.

(Shanghai Daily October 8, 2007)