(Shanghai Daily)
Updated: 2007-07-16 09:08

Shanghai stocks may move in a narrow range with reduced turnover as the market awaits first-half economic data due late this week.

The consensus among experts is that an interest-rate increase is on the cards.

Some analysts believe that the 4,000 level for the benchmark index remains a hard target.

They say a drop of 10 percent is probable if growth in consumer prices in June shows no signs of abating, which may lead to the rates lift.

The Shanghai Composite Index, which tracks yuan-backed A shares and hard-currency B shares, closed on Friday at 3,914.40, up 3.52 percent from a week earlier.

Turnover in Shanghai amounted to 389.3 billion yuan (US$51.42 billion) for the past five trading sessions, compared with 422.8 billion yuan for the earlier week, as many investors chose to stay on the sidelines amid policy uncertainties.

"People are set to be cautious and some may pocket earlier gains before the government unveils economic figures," said Liu Yu, an Orient Securities Co trader. "The market trend can hinge on those pending data."

China's top statistics bureau is scheduled this week to release economic indicators including consumer prices, which analysts widely expect could exceed four percent in June, well above the pre-set target of three percent for the entire year.

The estimated rise in prices "implies a higher likelihood of a reduction in the interest tax, for example, from the current 20 percent to 10 percent or another increase in benchmark interest rates in the near term," Deutsche Bank economist Ma Jun said in a note.

However, some observers noted that the market has a chance to rebound in coming weeks as it has been overreacting to worries over tightening and a slew of quality firms are about to unveil first-half results late this month or in early August.

"Even though there are factors that indicate inflation pressures, I think the market has already digested the news," said Lu Chengde, a Guosen Securities Co dealer.

"The market's focus is likely to shift to corporate earnings, which look rosy for a majority of listed companies."

Beijing Shoufang Investment Consulting Co expects the benchmark index to fluctuate between 3,520 and 4,050 this week and note the possible correction due to the data release may bring about buying chances.

The consulting company advises investors to focus on blue chips, including banking and real-estate counters, as well as chips whose losses were excessive against their fundamentals.