Shares in the Bank of China Hong Kong (Holdings) surged 7.65 per cent to a record high close of HK$9.15 (US$1.17) yesterday on hopes that more mainland tourists will open stock trading and offshore bank accounts in Hong Kong.

BOC Hong Kong, the overseas-listed arm of the State-owned giant Bank of China, was the best performing blue chip and outperformed a 0.96 per cent rise in the benchmark Hang Seng Index.

It was also Hong Kong's most heavily traded stock, drawing turnover worth HK$1.5 billion (US$192.3 million), or 11 per cent of the total market turnover.

Mainland people are expected to travel to Hong Kong in greater numbers as relaxation of visa requirements for Hong Kong tours will be extended to major cities of Guangzhou, Beijing and Shanghai in the coming weeks.

Although they are not allowed to trade overseas stocks due to currency controls on the capital account, more mainland tourists are expected to open stock trading and offshore bank accounts in Hong Kong through various means.

BOC Hong Kong would also benefit from potential offshore renminbi business in Hong Kong, said Lehman Brothers, which initiated coverage of the firm with a near-term target price of HK$9.4 (US$1.21).

The SAR government said last month that under the Hong Kong-mainland Closer Economic Partnership Arrangement, the city would have the priority if the mainland sets up an offshore renminbi business centre.

BOC Hong Kong is widely seen as a strong candidate for a renminbi settlement bank.

The government has also said the mainland would consider allowing Hong Kong banks to conduct renminbi business with individuals on a trial basis.

A team of financial experts from Beijing will visit Hong Kong from August 23 to undertake a one-week investigative study on a wide range of issues including renminbi business in the territory.

Officials from China Banking Regulatory Commission, China Securities Regulatory Commission and the People's Bank of China, the central bank, will come to Hong Kong next month to discuss financial co-operation with their counterparts.

The gain in BOC Hong Kong's shares also came as mainland-related stocks continued to rally on expectation that mainland people will trade those stocks with their stock accounts in Hong Kong.

Banking stocks had also been boosted by positive US economic data recently, which pointed to a global recovery.

The stock of BOC Hong Kong was being chased as a laggard, with its growth still lagging that in the Hang Seng Index since late April, some analysts said. Some other analysts said it was driven by increasing market liquidity.

However, Merrill Lynch last month slashed its 2003 earnings forecast for BOC Hong Kong by 12 per cent to HK$7.18 billion (US$920 million), taking into account its losses on property sales.The investment bank also predicted the bank would face slower loan growth, thinner margins and weaker non-interest income in the next few years.

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