Concerns of a possible rise in interest rates will hover over Shanghai's stock market this week, while all eyes may be on the index's movements especially after heavyweight PetroChina is included in the benchmark barometer today.

Investors have been expecting an immediate rise in interest rates after strong data released last week showed that national inflation and urban fixed asset investment have accelerated. The Shanghai Composite Index ended last week basically flat at 5,316.27. It only rose on Wednesday and fell on the other four trading days.

China's consumer prices added 6.5 percent in October year on year, matching a decade high seen in August, while its urban fixed-asset investment in the first 10 months climbed 26.9 percent, against a 26.4-percent rise through September, the National Bureau of Statistics reported last week.

"All the figures are telling that a rate hike is something we just cannot avoid, it's only a matter of time," Golden Sun Securities analyst Wang Jian wrote in a note. "The impact of a rate rise on the market is becoming increasingly likely after several hikes this year."

China's central bank has raised the benchmark interest rate five times this year and the reserve ratio for lenders nine times to soak up liquidity and curb credit growth.

"But the deposit rate is still too low to attract savings from other investment channels, so the impact of a rate hike on the stock market would be limited in the long term," Wang added. "The market may digest a rate rise soon after it is announced, but before the announcement, the market will generally be cautious. That's why the market is rebounding very slowly."

High valuation concerns have led the stock market to correct over the past weeks, with the most pessimistic analyst forecasting the index could hit bottom by year's end of as low as 4,500.

The decline of PetroChina, which ended at 38.82 yuan on Friday, was one of the main reasons which triggered a broader sell-off on valuation concerns.

Qin Hong, a strategist at Bohai Investment, said PetroChina, the world's largest listed firm by market value, could influence the index's performance today. Every one percentage point move in its shares could translate into a movement of more than 10 points in the index.

(Shanghai Daily November 19, 2007)