BEIJING, Mar. 16 (Xinhuanet) -- The prospect of new mutual funds hitting the market pushed stock prices in Shanghai to a two-year high yesterday behind strong performances of petrochemical and power companies.

    The Shanghai Composite Index gained 2.45 percent yesterday to close at 1736.22, its highest closing level since December 10, 2001.

    The local-currency A-share Index also closed 2.45 percent higher at 1820.40 yesterday and the hard-currency B-share Index advanced 2.23 percent to 118.87.

    "As new mutual funds have achieved record sales, investors are betting that demand for stocks will rise when these new funds add more liquidity into the market," said Sun Chao, an analyst with Citic Securities Co Ltd.

    "There is a consensus perception among investors that firms with a solid earnings outlook, such as petrochemical companies and power suppliers, will be potential buys for mutual funds."

    Sinopec Shanghai Petrochemical Co Ltd, a subsidiary of the country's biggest oil refiner China Petroleum and Chemical Corp, rose 7.79 percent to a six-year high of 8.05 yuan.

    Both Goldman Sachs and UBS AG predict China's economy will grow by 9.5 percent this year, creating more demand for raw materials, such as petrochemical products.

    Last year, China's imports of crude oil rose 31.3 percent from a year earlier to hit 91.12 million tons.

    China Petroleum and Chemical, which is better known as Sinopec, closed 3.70 percent higher at 5.60 yuan yesterday.

    SDIC Huajing Power Holdings Co Ltd closed 7.53 percent higher at 20.42 yuan yesterday, nearing its six-year high.

    Shares of Huaneng Power International Inc, the country's largest power supplier, closed yesterday at 21.23 yuan, a gain of 4.32 percent to hit its highest level since it was listed on the A-share market at the end of 2001. Domestic power suppliers are struggling to meet increased demand and will continue to face shortages through 2006, according to the State Grid Corp of China.

    "The solid fundamentals of these companies support the upside on share prices," said Wu Jie, a trader with Kinghing Securities Co Ltd. "Newly established mutual funds will have an insatiable appetite for them."

    The China Securities Regulatory Commission, the stock market regulator, has been encouraging fund management firms to sell more mutual funds as a way to entice investors to take their money out of the bank and put it into the stock market. Domestic markets are up 16 percent since the start of this year. Enditem

(Shanghai Daily news)