Shanghai shares edged higher yesterday on reports that more funds may enter the country's stock markets this year in hopes of a rally following a four-year slump.

The Shanghai Composite Index, which groups yuan-denominated Class A shares and hard-currency Class B stock, was up 0.46 percent to 1,208.44.

The A share index grew 0.46 percent to 1,269.39 and the B share index rose 0.80 percent to 71.13.

"The majority of investors expect the market will go up both this year and next," said Liu Yu, an Orient Securities Co trader.

"The index has a chance to test 1,250 points next month but may face short-term correction pressure thereafter."

A total of 25 finance firms had as much as 6 billion yuan (US$750 million) as of the end of last year eligible for securities investment, the Shanghai Securities News reported yesterday, citing financial reports submitted by the firms.

Elsewhere, UBS AG, Europe's biggest bank, said it has filed applications with the State Administration of Foreign Exchange for an additional quota of US$300 to US$500 million to buy yuan-backed stock and bonds, according to Nicole Yuen, its head of China Equities.

The forex regulator plans to raise the combined amount of money overseas investors can purchase in yuan-denominated stock to US$10 billion under the Qualified Foreign Institutional Investor program.

So far, 34 select overseas institutions have been given a limit of US$5.6 billion.

"After a four-year dip, the market is very likely to bottom out this year," said Liu, "Long-term prospects are good."

China Petroleum & Chemical Corp, Asia's biggest oil refiner, jumped 2.61 percent to 4.72 yuan.

CITIC Securities Co, the country's biggest listed broker, saw its shares rise 1.18 percent to 6.02 yuan after it said in a report that its 2005 profit may rise more than 50 percent on a yearly basis.