Shanghai's key stock index dipped in the morning session today on concern record oil prices will fuel inflation and prompt the central bank to raise interest rates.

The Shanghai Composite Index, which tracks yuan-denominated A shares and hard-currency B shares, dipped 0.55 percent, or 20.02 points, to 3,604.21 at 11:30am.

Losers in the Shanghai market outnumbered gainers 430 to 346 while 13 were unchanged.

The Shenzhen Composite Index, which tracks the smaller domestic stock exchange, was down 0.39 percent, or 4.36 points, to 1,119.93.

China Merchants Bank Co declined on speculation demand for loans will drop while China Vanke Co lost ground on concern higher mortgage loan rates will deter home purchases.

Merchants Bank, the nation's biggest dual-currency credit-card issuer, retreated 2.52 percent to 31.28 yuan (US$4.47). China Vanke, the nation's biggest listed property developer, lost 3.97 percent to 20.80 yuan.

China ordered banks this week to set aside a record proportion of reserves after inflation surged last month to almost a 12-year high. The central bank raised interest rates six times last year.

PetroChina, the country's biggest oil producer and biggest market component, lost 1.02 percent to 17.43 yuan while Sinopec, the nation's largest oil refiner, also buckled 1.97 percent to 11.93 yuan in the morning session.

Crude oil rose 1.7 percent to US$126.29 on May 16 in New York, the highest close since futures began trading in 1983, on speculation supply risks and weakness in the US dollar will sustain investor demand for the commodity. The contract recently traded at US$126.58 a barrel in after-hours trading.

Higher oil prices lift production costs, forcing companies to raise product prices.

PetroChina said yesterday that it has resumed fuel distribution in areas worst-hit by the earthquake in Sichuan as the rescue effort continues. China released fuel from its reserves and diverted supplies to airports near the quake zone.

Eight filling stations near the temblor's epicenter in the southwestern province had resumed operations by yesterday, PetroChina's parent China National Petroleum Corp said. The oil producer has sent 16 tank trucks and five fuel tankers to bolster supplies as demand for diesel to fuel power generators surges.

PetroChina and China Petroleum & Chemical Corp, the nation's biggest oil companies, are restoring fuel supplies to support the rescue operation prompted by the deadliest quake to strike the country since 1976.

Elsewhere, Sichuan Changhong Electric Co, China's second-biggest television maker, said it will resume production today after the province was hit by the 8.0-magnitude earthquake on May 12. Its shares fell 1.45 percent to 6.80 yuan.

The mainland's two stock exchanges in Shanghai and Shenzhen and the futures markets will suspend trading for three minutes at 2:28pm today to join three days of nationwide mourning for the victims in the catastrophe, the State Council, China's Cabinet, announced last night.

(Shanghai Daily May 19, 2008)