(Reuters)
Updated: 2007-08-03 19:38

SHANGHAI - China's shares rose to a new record high Friday the third time in a week, surging back from an Asia-wide slump prompted by worries about US mortgages.

The benchmark Shanghai Composite Index rose 3.5 percent to close at 4,560.77 points. The Shenzhen Composite Index for China's smaller second market also reached a new high, rising 2.3 percent to 1,323.40.

China's currency, the yuan, also rose, closing at 7.57 to the US dollar.

The Shanghai stock index also set new record highs Monday and Tuesday, driven by expectations of strong corporate profits. Chinese stocks fell Wednesday as Asian markets reeled from a Wall Street sell-off prompted by concern that troubles over subprime mortgages might spread. But Chinese prices rose again Thursday, recovering some of their losses.

Chinese companies have been forecasting strong profit growth amid a boom that saw China's economy expand by 11.9 percent last quarter, its fastest quarterly growth since 1995.

The Shanghai index is up more than 60 percent this year, after more than doubling last year.

Friday, the biggest gains were among property and financial shares.

Analysts said they expected the market to edge even higher in coming sessions, led by a revival of speculative interest.

"The property sector is already overvalued, but its recent gains have spurred a strong appetite for property shares," said strategist Wang Sheng at Haitong Securities. "Investors seem unlikely to step back until the sector is way too overheated."

Shares in developer China Vanke jumped 7.1 percent. Beijing North Star rose 7.4 percent and Financial Street Holding surged 9.6 percent.

"Some new funds are building positions and many retail investors encouraged by the recent market rise are piling into stocks," said Qi Fupeng at China Jianyin Investment Securities.

China Minsheng Banking rose 8.5 percent, while Citic Securities and China Merchants Bank both rose by their 10 percent daily limit.

"Financial names are by no means cheap now," Wang said. "But compared with property firms and many other extravagantly priced companies, their valuations are acceptable."