China's shares edged up over 0.6 percent on Thursday, giving up some of the morning's gains, as funds piled into steel counters like Baoshan Iron and Steel Co Ltd that had persistently underperformed.
Analysts warned that the market could soon reverse course and head south, weighed down by a raft of negative factors from a campaign to float $250 billion in non-traded, government-owned stock to expectations of slowing corporate profit growth.
The benchmark Shanghai composite index closed at 1,112.563 points, and is now down about 12 percent from the start of the year.
In comparison, Baosteel has shed a third of its value since the beginning of 2005, pummelled by an inexorable slide in steel prices and Beijing's battle against over-investment.
Baosteel, the world's sixth-largest steel maker, was the second most active stock in Shanghai. It gained 1.3 percent to end the session at 4 yuan, extending Wednesday's 1.8 percent rally.
Its shares shed 1.5 percent in a knee-jerk reaction on Tuesday after the firm unveiled plans to cut prices on core products by an average of more than 10 percent in the first quarter of 2006 versus the final quarter of 2005.
Baosteel's closest Shanghai-listed rival, Wuhan Iron and Steel Co, managed a 0.7 percent gain to 2.79 yuan. It was the most active stock of the day.
"Today was mostly an extension of yesterday's rebound," said Liu Bo, an analyst with Founder Securities. "The bears are just around the corner as companies speed up state share floats."
China in April revived a programme to convert non-traded state shares, which account for two-thirds of market capitalisation, into freely floated stock.
So far, about 270 companies - nearly a fifth of China's 1,400-plus listed firms - have completed procedures or have said they would join the nation-wide reform. That has helped push the markets to multi-year lows.
Hainan Airlines Co Ltd, China's fourth-largest carrier part-owned by global financier George Soros, held steady at 2.44 yuan.
It had climbed a tad in the morning as investors took a positive view of reports that its state parent was in talks to buy part of Hong Kong's CR Airways, as it pursued a long-held ambition to expand abroad.