Citigroup said on Wednesday it had raised its investment rating on Bank of Communications to "hold" from "sell," after Chna's fifth-largest lender posted a 31 percent gain in first-half profit.

Citigroup raised its price target to HK$5.60 per share from HK$4.60 per share, saying the market would focus on the bank's strong operating results.

The bank's shares had fallen nearly 2 percent to HK$5.03 in early trading on Wednesday.

Bank of Communications, which is 19.9-percent owned by HSBC Holdings Plc., said it earned 6.0 billion yuan (US$758 million) in the first half, up 31 percent from a year earlier, driven by loan growth of 16.8 percent.

The strong results also prompted Citigroup and Merrill Lynch to raise their earnings estimates for Bank of Communications.

Citigroup increased its 2006 profit forecast by 5.3 percent to 12.7 billion yuan and its 2007 estimate by 8.8 percent to 15.9 billion yuan. It expects the bank to earn 20.7 billion yuan in 2008, up 7.4 percent from its previous estimate.

Merrill, which maintained its "sell" rating because of the bank's high stock price, raised its 2006 profit estimate by 4 precent and its 2007 and 2008 forecasts by 9 precent and 17 percent, respectively, citing high loan growth.

Merrill now expected Bank of Communications to earn 12.4 billion yuan this year, 14.6 billion yuan in 2007 and 16.2 billion yuan in 2008.  

Bank of Communications shares have more than doubled since their Hong Kong debut in June 2005.

Merrill said the stock was expensive, citing recent credit tightening measures by Beijing and competition for investor interests from several new China bank listings.

Bank of China shares began trading in Hong Kong in June and Industrial & Commercial Bank of China, the country's biggest lender, and a group of other mainland banks plan listings in the next few months.

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