LVMH Group Watches & Jewellery Division, an arm of the world's largest luxury products group, has acquired shares in Xinyu Hengdeli Holdings, the leading domestic watch distributor.

LVMH officials said the group spent HK$20 million (US$2.57 million) buying 6 million shares on Wednesday alone, and it said it would continue to increase its holdings.

The company, however, declined to reveal exactly how much of the firm's stock it wants to buy.

"We want to help the mainland distributor to expand its network. Our own brands will therefore benefit," said James Cheng, spokesman for LVMH China.

Ravi Thakran, president and chief executive officer of LVMH Group Watches & Jewellery Division for Asia-Pacific, said:"The economic growth in Asia is strong, especially in China, therefore it is one of our major focuses for the development of the group.

"LVMH Group has high expectations for Xinyu Hengdeli Holdings in the watch and jewellery field in China."

Xinyu Hengdeli Holdings is currently the strongest retail agent for mid- to high-end retail watches in China, the firm said.

Xinyu earlier this month announced it had set up two new branches, in Hefei of Anhui Province and Zhengzhou of Henan Province, in order to further develop the retail market for branded watches on the mainland.

The expansion has brought Xinyu's overall retail store number to 76. It plans to open 25 new stores this year.

In addition, Xinyu has unveiled its first-quarter results for the three months ending on March 31.

Sales revenue during the first quarter was up 25 per cent year on year, close to the firm's estimate of annual revenue growth of 26 per cent.

Following a 2004 deal, LVMH Group has allowed Xinyu to be China's sole agent for Tag Heuer, Zenith, Fendi and Dior watches.

"We believe that with this collaboration, the sale of watches will see a noticeable increase," Thakran said.

He added the group has spent over HK$80 million (US$10.3 million) on advertising in China this year.

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