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January 18, 2010

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Investor uncertainty to prevail

UNCERTAINTY is likely to prevail among investors in the Shanghai stock market this week on speculation that China will raise interest rate, according to market watchers.

The benchmark Shanghai Composite Index closed 0.27 percent higher at 3,224.15 last Friday. For last week the gauge gained 0.9 percent.

The People's Bank of China last Tuesday said it would raise the reserve ratio, the amount of money a bank must deposit with the central bank, by 0.5 percentage point from today. The announcement brought down the index by more than 3 percent on Wednesday on concerns of tighter liquidity as analysts and economists said this may signal a pending increase in the interest rate.

"The central bank's move on the reserve ratio has sparked uncertainties in the market as many (investors) suspect there will be a rise in the interest rate very soon," said Xing Zhenning, an analyst with Aerospace Securities. "Whether the index will be able to rebound in the short term depends on how big the turnover will be."

"The index will remain between 3,100 and 3,300 points next week (this week)," Xing added.

Qian Qimin, an analyst at Shenyin and Wanguo Securities, predicted flat trading due to less funds available for investing and also due to a gradual pullout by institutional investors.


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