They cautioned, however, that central government austerity policies designed to rein in oversupply in some industries may still have negative effects on corporate bottom lines and that export-oriented firms may face tougher trading environments given fluctuations in the yuan.

    "Profits at Chinese mainland-listed companies may drop nearly 10 percent in 2006 due to the impact of macroeconomic measures," said Jiang Hui, a fund manager at ICBC Credit Suisse Asset Management Co.

    "But opportunities exist in every sector as most stocks are undervalued after years of declining prices."

    Among other worries clouding the trading atmosphere are lingering uncertainties over the government's ability to shore up corporate governance at listed firms and the timetable for resumption of new share issues, analysts said.

    The central government initiated a campaign last year to require state-owned companies to improve accounting standards, provide timely information disclosure and plow more profits into dividends.

    Senior officials, including China's top securities regulator Shang Fulin and top state-asset regulator Li Rongrong, indicated that IPOs may resume this year and encouraged overseas-listed enterprises to pursue mainland equity sales.

    "More detailed rules and measures are needed to beef up corporate governance," said Lu Chengde, a Guosen Securities Co trader. "Now investors are eager to know when new share sales can resume and whether big-cap companies traded overseas will come back."

    Any rush to list large blocks of stock on mainland bourses will likely depress investors' appetites, according to Lu, noting regulators may first test market demand using one or two good-quality companies.