China’s stock market rose in heavy trade on Monday as shares in smaller banks surged in response to a local media report that China Development Bank might buy all or part of Shenzhen Development Bank.

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Real estate shares also outperformed after official media said the government was considering a package of measures to provide long-term support for the residential housing market.

The Shanghai Composite Index spent most of the morning lower but closed the day up 1.96 percent at 2,305.78 points.

Shenzhen Development Bank jumped its 10 percent daily limit to 14.99 yuan after the Economic Observer Online (www.eeo.com.cn) quoted unnamed sources as saying on Sunday that China Development Bank was discussing a takeover of or a major stake purchase in Shenzhen Bank, and that a proposal had been made to the banking regulator.

Spokesmen for the banks declined to comment, and the Shenzhen bank’s shares were suspended in the afternoon pending a statement.

But its jump boosted shares in other small and medium-sized banks amid talk that some might eventually also be involved in merger discussions; CITIC Bank rose 3.13 percent to 4.61 yuan. Bank of Ningbo rose 5.15 percent to 9.18 yuan after saying on Friday that 2008 net profit rose 40 percent, though growth slowed sharply in the second half of the year.

Chinese share prices tumbled 4.56 percent Tuesday, as fears of economic downturn loomed and confidence was dampened by Wall Street’s overnight fall to its worst finish since 1997.

The benchmark Shanghai Composite Index, which covers both A and B shares, fell 4.56 percent, or 105.12 points, to 2,200.65.

The Shenzhen Component Index on the smaller Shenzhen bourse was down 3.72 percent, or 324.68 points to 8,403.02.

Total turnover stood at 250.4 billion yuan ($36.66 billion).

Losers led gainers by 768 to 172 in Shanghai and 691 to 116 in Shenzhen.

Analysts said Wall Street’s plunge and the Central Bank’s warning of rising economic pressure due to possible inflation led to the escape of capital flow.

The financial sector still led the losses as the world financial system had not shown any signs of recovery.

China Merchants Bank dropped 6.5 percent after it announced Monday night that 4.799 billion non-tradable shares would be unlocked for trading as of next Monday.

CITIC Securities, Northeast Securities, and Changjiang Securities all fell by nearly 10 percent.

The gold sector, however, did alright. Zijin Mining Group Co Ltd, the country’s largest gold producer, and Zhongjin Gold Co Ltd, saw share prices rise 6.35 percent and 5.06 percent to settle at 9.54 yuan and 57.94 yuan, respectively.

The auto sector also recorded gains driven by the country’s stimulus plan to rejuvenate the auto industry.

Hunan Changfeng Motors, Harbin Dongan Auto Engine, and Weichai Power, rose by 6.47 percent, 10.07 percent and 3.4 percent.

The Chongqing-based Chang’an Auto, Ford Motor’s Chinese partner, surged by the 10-percent daily limit for the 7th consecutive day, after the company announced it would buy back as much as $117-million worth of B shares on the Shenzhen bourse.

Chinese shares lost further ground in morning trading Wednesday after falling 4.56 percent Tuesday, as weak investor confidence overcame an overnight Wall Street rebound, dealers said.

The Shanghai Composite Index fell 0.8 percent, or 17.57 points, to 2,183.08, while the Shenzhen index slid 2.21 percent, or 185.53 points, to 8,217.49.

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Losses outnumbered gains by 544 to 299 in Shanghai and 418 to 317 in Shenzhen.

Major gains were posted by agriculture, timber and information technology shares. Declines were led by properties and financial issues.

Shenzhen Development Bank (SDB) tumbled 4.07 percent to 14.38 yuan ($2.1), after having denied media reports Tuesday night that its largest shareholder, Newbridge Capital, was in talks with China Development Bank (CDB) to sell its stake in SDB.

Shares of SDB surged by the daily limit of 10 percent to 14.99 yuan Monday on market talk that the state-run CDB would purchase a stake in SDB. Newbridge bought a 17.9 percent stake in SDB in 2004.

SDB shares were suspended Tuesday.

China Merchants Bank, the country’s sixth-largest commercial lender, eased 1.16 percent to 13.64 yuan. Just under 4.8 billion non-tradable shares in the bank are to be unlocked for trading as of Monday.

China’s main stock index rebounded to end slightly higher on Wednesday as banking shares recovered in late trade, but analysts said it was not clear that the market was resuming an extended uptrend.

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The Shanghai Composite Index, which tumbled 4.56 percent on Tuesday and was down as much as 2.6 percent in the early afternoon on Wednesday, closed 0.27 percent higher at 2,206.57 points.

China Merchants Bank shot up 8.12 percent to 14.91 yuan in its heaviest trade since April 2006. A total of 4.8 billion of its shares will become tradable on March 2 when a lock-up period for institutional investors expires; the prospect had been weighing on the shares, but analysts said some investors bet on Wednesday that the expiry would not produce heavy selling.

Shenzhen Development Bank (SDB) resuming trade after being suspended since Monday afternoon, closed 1.07 percent higher at 15.15 yuan after falling over 4 percent earlier on Wednesday.

Late on Tuesday, the bank denied a local media report that it had been discussing the possibility of a merger with China Development Bank. SDB jumped its 10 percent daily limit on Monday in response to the report.

Bank of East Asia (BEA), a major bank in Hong Kong, announced Tuesday that its profit after taxation stood at HK$104 million ($13.4 million) for 2008, 97.5 percent lower than the HK$4,221 million reported in 2007.

Basic earnings per share stood at HK$0.02, compared with HK$2.65 per share in 2007. Return on average assets and return on average equity were 0.01 percent and 0.12 percent, respectively, for the year, BEA said in a statement.

The BEA Board of Directors proposed a final dividend of HK$0.02 per share. The total dividend for 2008, including the interim dividend of HK$0.23 per share, amounts to HK$0.25 per share, a decrease of 84.9 percent over the total dividend paid to shareholders last year.

In celebration of the Bank’s 90th Anniversary, the Bank has also announced the bonus issue of one new share for every 10 ordinary shares held.

As of Dec 31, 2008, the BEA Group’s total consolidated assets totaled HK$415.3 billion, up 5.4 percent over 2007. Total equity rose to HK$32.5 billion by the end of 2008.

With the continuing deterioration of the credit markets, particularly in the second half of last year, BEA took decisive action in October 2008 to sell or write off its entire collateralized debt obligations (CDOs) holdings, said the bank.

CDOs are complex financial products often linked to US mortgage debt. Their value has collapsed in the past year as US borrowers have struggled to repay loans during a drop in the American housing market and the wider economy.

“We enter 2009 with a clean slate,” said David K.P. Li, chairman and chief executive of BEA.

“With the CDO portfolio off our books, we have no further exposure to the troubled assets that continue to weigh on many banks worldwide,” he added.

On Tuesday, the shares of BEA bucked the downtrend of the market to end up 2.2 percent at HK$15.90 on bargain hunting, after shedding more than 11 percent over the last four sessions on expectations of the weak result.

China Merchants Group, a industrial and trading conglomerate, said on Thursday it had posted a profit of 13.92 billion yuan ($2.04 billion) in 2008, a 29 percent decrease year-on-year, the first slump in seven years, as a result of the economic downturn.

The group said challenges will be tougher in 2009 and it will focus on cost control and risk management this year to limit the downward trend.

As one of the 10 biggest enterprises in terms of profit, it had total assets worth 217.19 billion yuan in 2007.