Shanghai stocks hit a 64-month high yesterday and were closing in on an all-time peak after the market regulator indicated a fresh flow of capital was on the horizon.

The benchmark Shanghai Composite Index, which tracks yuan-denominated A shares and hard-currency B-shares, gained 59.60 points to close at 2,161 yesterday, a rise of 2.84 percent.

The all-time high for the index is 2,245 points, set on June 14, 2001. Analysts believe the market will break the record this month.

Yesterday's transaction volume for A shares, B shares and closed-end funds traded on the Shanghai Stock Exchange surged to a record 54.8 billion yuan (US$7 billion).

The market rush was triggered in part by a weekend statement from Shang Fulin, chairman of the China Securities Regulatory Commission, that the government will allow the nation's money managers, social security funds and insurers to increase their holdings in China's stock markets. Details were not revealed.

The regulator also said it will gradually expand the size of the qualified foreign institutional investor program, under which foreign institutions operate mutual funds backed by yuan securities.

"Investors translated the remarks into a bullish signal that authorities are further broadening the market's capital channels," said Zhang Qi, a Haitong Securities Co analyst.

"That's why more money poured into the market to boost the index to a new five-year high."

The Shanghai market has been gaining for the past 14 weeks. Among the recent momentum boosters was China's plan to unveil its first stock-index futures early next year to broaden capital industry products with derivatives and offer companies fresh tools to hedge risks.

Blue-chip bounce

The pilot futures product, to be based on a barometer that tracks the country's top 300 public firms in Shanghai and Shenzhen, has spurred a buying spree in blue-chip shares.

The SSE 180 Index, which covers the 180 largest companies traded in Shanghai, jumped 3.26 percent yesterday to 4,113.40, raising its gain to 22.2 percent since November 1.

The uptick compared with a 17.6 percent rise in the benchmark Shanghai Composite Index during the period.

"Liquidity has been channeled into the capital market, which led to a rapid expansion in the size of equity-invested funds," said Li Wenhui, a Huatai Securities Co analyst. "Funds tend to build heavy positions in blue chips, which in turn could boost the broad market."

Li expects Shanghai securities to continue their strong performance.

Telecommunications stocks and digital-media firms will likely extend their upswing to early next year, he said.

The banking sector led yesterday's runup, with all six Shanghai-listed lenders posting gains between 2.21 percent and 8.49 percent.

Shares of the Industrial and Commercial Bank of China, the country's biggest lender, rose 3.99 percent to 3.91 yuan. China Merchants Bank, the country's most profitable lender, jumped 6.14 percent to 13.82 yuan.