BEIJING, June 8 -- Chinese shares fell 5.34 per cent yesterday, the biggest drop in four and a half years since January 28, 2002, when they fell 6.33 per cent.

    The benchmark Shanghai composite index dropped 89.586 points to close at 1,589.54 points.

    Analysts denied that an imminent slew of initial public offerings (IPOs) approved by the securities regulator in past weeks has put pressure on the market, saying the decline was not due to anticipation of forthcoming IPOs such as Bank of China's.

    Bank of China (BOC), the country's second-largest lender, announced on Tuesday it had filed for a Shanghai IPO that could raise up to a record US$2.5 billion. It will join a flood of stock offers in coming months.

    "It is farfetched to say that the new IPOs account for the fall," the CITIC China Securities bank analyst She Minhua said.

    "Instead, natural profit-taking played an important part in today's fall.

    Institutional investors had gained much in the past weeks, and it is a natural choice for them to reduce input and to take time to sit on the fence," he said.

    But She pointed out that institutional investors would likely buy BOC shares to replace other bank shares in their investment portfolios when the bank goes public.

    "If BOC goes public at domestic bourse, other domestic listed banks will be affected, especially China Merchants Bank (CMB), which used to be many institutional investors' preference."

    CMB shares yesterday dropped 4.86 per cent to close at 6.85 yuan (85.6 US cents). Li Yinquan, vice-president of China Merchants Group, the major holder of the CMB, yesterday said that BOC's issue of A shares would have an impact on domestic bank shares, but it was hard to predict whether it would be positive or negative.

    However, despite the downwards trend, shares in companies based in China's northern city of Tianjin enjoyed a buoyant day yesterday, as the port city finally won approval from the central government for its development zone dubbed the "Pudong of North China" by international investors.

    Tianjin Binhai Energy and Development Co Ltd, a chemical maker, surged 10 per cent yesterday. Another Tianjin-based company Tianjin Teda Co Ltd rose 3.49 per cent to close at 3.85 yuan (48.1 US cents).

    Zhang Qi, an analyst with Shanghai-based Haitong Securities, predicted that the market was not likely to see an acute drop again in the following days.

    "It is normal to fall below the 1,600 points since the market had gained over 50 per cent in the past months. I think the composite index will fluctuate around 1,600 points and will not turn to long-term bearish," Zhang said.

    "In the coming days, mild fluctuations will take the place of acute fluctuations to be the main theme of the market," he added.

    (Source: China Daily)