Investors have rushed to buy shares in Bank of China's Hong Kong operations, and then to sell them again, pushing them 4.7% below the offer price on their first day of trading.

Small investors, who got the shares at a discount, rushed to cash in, making a quick profit in the toughest market conditions for years, traders said.

The Bank of China (HK) debut was the biggest flotation in Hong Kong since 2000 and one of the biggest in the world this year.

China's biggest foreign-exchange bank said it had raised about $2.8bn (�1.8bn) by selling 2.6 billion shares in its Hong Kong operations.

Market opens wider

The debut coincided with another step to open China's financial markets - the stock market regulator has said foreign stock brokers can apply for membership of China's Shanghai and Shenzhen exchanges and seats on trading floors.

Bank of China (HK) set the opening share price at HK$8.5 ($1; �0.6) each.

The shares closed at HK$8.1, after sinking from the start, though Hong Kong's main index see-sawed before closing down 0.8% at 9,884.78.

"Basically, it is psychological. Retail investors bought it at HK$8.0. They are going to sell it unless they are very long term investors," said Steven Chan of brokers GK Goh.

The offering proved popular with small investors, who applied for 26 times more shares than were set aside for them.

Among institutional investors, it was five times oversubscribed.

China toehold

Bank of China ranks among the country's top four banks and its decision to list 25% of its Hong Kong arm has been seen as test of market reforms.

Investors have had little to get excited about recently

Financial institutions have jostled for Bank of China (HK)'s stock to get a long-term foothold in China's banking system despite worries about bad debts.

They bought up much of the stock ditched by small players on the debut, said traders.

At Bank of China (HK), bad debts make up about 11% of the total loan book, compared with an average of 4% among Hong Kong banks.

Its mainland parent firm's bad debts are thought to be about 30% of loans, the average for the top four state banks.

China has pledged to cut this in half by 2005.

Fines paid

Bank of China has streamlined its Hong Kong arm ahead of the listing and detailed its anti-corruption investigations in its listing prospectus.

The listing looked as if it might be derailed earlier in the year, when Wang Xuebing, the ex-president of Bank of China, was arrested on corruption charges.

The bank paid fines to US and Chinese regulators for misdeeds at its New York office while Mr Wang was president.

Mr Wang remains under arrest and is being investigated by mainland prosecutors.