The Shanghai stock market edged up yesterday despite the unexpected announcement of an interest rate hike by the central bank late on Tuesday.

The People's Bank of China raised the one-year benchmark deposit rate by 27 basis points to 3.6 percent and the one-year lending rate by 18 basis points to 7.02 percent, effective from yesterday.

Analysts said the rate rise will not have a negative impact on the stock market, which has plentiful liquidity. China still faces the problem of liquidity inflows, backed by the expectation of currency appreciation, which was further strengthened by the narrowing of the interest rate between the US and China.

The Shanghai Composite Index climbed 0.5 percent to close at 4980.07, yet another new high, with 555 out of 901 stocks closing higher. Turnover on the Shanghai bourse amounted to 162.2 billion yuan. The smaller Shenzhen Composite Index jumped by 1.68 percent to close at 1398.37, led by large-cap stocks.

Meanwhile, the CSI 300, the underlying indicator of the upcoming index futures, surged 1.59 percent to break through the key barrier of 5000 points yesterday, closing at 5051.69.

The CSI 300 medical index has surged the most, 193.49 percent, since the beginning of this year, followed by the CSI 300 raw materials index's jump of 185.06 percent, according to China Securities Index Co Ltd. Financial and real estate stocks contributed 28.93 percent of the CSI 300 index.

"Plentiful liquidity is continuing to drive up the stock market. A small adjustment to the interest rate may not be able to solve the problem of excessive investment and liquidity in China's economy," an Orient Securities report said.

"The negative interest rate may continue to lure investors to move money to the stock market. Blue-chip stocks, which were largely held by mutual funds, are expected to go up," said the report.

Lin Wenjun, chief economist at Fullgoal Fund Management Co Ltd, said: "We are still positive about the A-share market, and the interest rate rise won't change our investment portfolio."

Wu Feng, an analyst at TX Investment Consulting Co Ltd, said yesterday that the stock market may be volatile at 5000 points, a mark set by many institutional investors as a target point.

"It is obvious that the stock market is rising at a slower pace and will be more volatile when it approaches 5000 points," he said.

Stocks in the alcohol and travel sectors performed well. Wuliangye Group, China's largest liquor producer, jumped 9.76 percent to close at 35.98 yuan. Beijing Capital Co Ltd jumped to the daily limit to close at 15.17 yuan while Shenzhen Century Plaza also surged 10 percent.

(China Daily August 23, 2007)