China's stock market closed at a 26-month high yesterday, boosted by anticipation of Bank of China's (BOC) imminent listing on the domestic bourse as well as the securities regulator's introduction of margin trading.

Investors watch market movements at a stock exchange in Fuyang, Anhui Province yesterday.  China's stock market closed at a 26-month high yesterday, boosted by anticipation of Bank of China's  imminent listing on the domestic bourse as well as the securities regulator's introduction of margin trading. [China Daily]

The benchmark Shanghai Composite Index surged 1.5 per cent to close at 1,697.282 points, reaching its highest level since mid-April 2004. The Shanghai index has gained more than 10 per cent in the past three weeks.

Bank shares enjoyed great popularity on Monday, driven by expectation of BOC's July 5 domestic listing. The bank will raise 20 billion yuan (US$2.5 billion) in the country's largest-ever domestic initial public offering (IPO).

"BOC's shares have been widely predicted to rise at least 15 per cent on the first trading day, " She Minhua, a banking analyst with CITIC China Securities, said. "The fact that BOC shares will go high benefits the valuation of other banking shares."

Shares in Huaxia Bank Co Ltd yesterday surged 7.1 per cent to close at 4.83 yuan (60 US cents), while shares in the Shenzhen Development Bank, still in the process of stock reform, climbed 7.14 per cent to 8.1 yuan (US$1.01).

Yesterday's market was also buoyed by the security regulator's announcement it would allow qualified brokerages to offer margin trading, an advanced trading tool that lets investors buy and sell with money and stocks borrowed from brokerages.

"Margin trading will begin on a trial basis from August 1," the China Securities Regulatory Commission (CSRC) said in a statement on Sunday.

"Even though the regulator is keeping margin trading to a small-scale trial basis, the news did send a positive signal about the government's determination to develop the stock market, and that buoyed investor confidence," Cheng Weiqing, an analyst with CITIC Securities, said.

"A batch of blue chips shares will go high since those shares will be selected to trade in margin trading," Cheng said.

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