Analysts said the rally yesterday was partly influenced by the strong performance on international stock markets, which continued to grow during Spring Festival. And good results at many major listed companies in 2006 further boosted the booming Chinese market.

A total of 157 companies on the Shanghai and Shenzhen stock exchanges released their annual reports before Spring Festival, showing a 110 percent increase in aggregate profit from 2005.

"The surging profits of listed companies set the foundation for continuous growth in 2007," said Chen Zhou, a fund manager from Guotai Fund Management.

But analysts warned the market could face another correction after the National People's Congress and the Chinese People's Political Consultative Conference, which will be held in early March.

"The excess liquidity that has been driving the rally could be absorbed by the gathering pace in the conversion of non-tradable shares to tradable shares in April after the conference," said Zhang.

Stocks in the banking sector dropped yesterday in response to a hike in the bank reserve ratio. China Merchants Bank dived 5.6 percent to close at 17 yuan and Shanghai Pudong Development Bank, 5 percent. China Life, which made its debut on the Shanghai Stock Exchange on January 9 with an offer price of 37 yuan, slipped 1.5 percent to close at 37.25 yuan. The Industrial and Commercial Bank of China, the nation's biggest lender, dropped 1 percent to close at 5.1 yuan.

Analysts said the 0.5 of a percentage point hike, which is expected to take only 160 billion yuan out of the stock market, will not greatly influence the stock market.

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