Haitong Securities Co. plans to raise as much as 26 billion yuan ($3.4 billion) in the biggest share sale by a Chinese brokerage to open branches, hire traders and arrange stock offerings as the nation's equity markets surge.

The company will offer shares to selected institutions, China's second-largest publicly traded brokerage by market value said in a statement to the Shanghai exchange today. It didn't give a date for the sale. Haitong also plans to boost investment and expand into futures trading.

Haitong's sale may surpass the 25 billion yuan raised by larger rival Citic Securities Co. last week, providing funds to compete in a stock market that's quadrupled in value in the past year. Haitong's market value has swelled to 180 billion yuan, more than that of Bear Stearns Cos., since it gained an exchange listing in June by taking over another company.

``There may be a bubble in the brokerage stocks because valuations are based on the assumption of high trading volume, which won't last for long,'' said Yi Yangfang, who helps manage about $5 billion at GF Fund Management Co. in Guangzhou.

Haitong's shares rose 4.3 percent to 53.09 yuan at the 11:30 a.m. trading break in Shanghai. The stock has jumped more than fourfold since the takeover of the former Shanghai Urban Agro- Business Co. was announced on Jan. 24, and added 12 percent since the regulator approved the transaction on June 8.

The stock sale will almost match the $3.7 billion Goldman Sachs Group Inc. raised in its 1999 initial public offering.

Stock Investments

China's government is encouraging the nation's biggest brokerages to raise funds, expand and acquire rivals to strengthen the industry before opening the market to global securities firms such as Merrill Lynch & Co. and Morgan Stanley.

Beijing-based Citic Securities raised funds to finance acquisitions and expansion into private equity and derivatives trading. The company's stock has surged more than sixfold this year, propelling it past Nomura Holdings Inc. as Asia's biggest brokerage by market capitalization.

Haitong, China's sixth-biggest brokerage by assets, said on July 17 that it would sell 1 billion new shares for at least 13.15 yuan each to no more than 10 institutional investors including mutual funds, brokerages, asset managers and insurers.

The brokerage plans to more than double proprietary stock investments to 3.5 billion yuan from 1.5 billion yuan, according to today's statement.

Industry Revival

Haitong reported an almost ninefold increase in first-half profit to 2 billion yuan on July 26, driven by gains from the stock market rally. The benchmark CSI 300 Index has jumped 165 percent this year, after more than doubling in 2006.

China's securities regulator is urging companies not to rely on investment gains from the stock market for increasing earnings, Qi Bin, head of research at the China Securities Regulatory Commission, said in an interview in Beijing last week.

The stock market's rebound from an eight-year low in July 2005 has helped revive China's brokerage industry after years of losses, collapses and corruption scandals related to abuse of client funds. Seven of the 10 largest brokerages earned a combined 17.4 billion yuan in the first half, compared with a 7.84 billion yuan loss for the industry in 2005.

Haitong has 2 million clients in 124 outlets around China. Profit last year was 650.4 million yuan, compared with a loss of 965.3 million yuan in 2005.

The Shanghai-based company became the third brokerage to be publicly traded in China after its so-called backdoor listing. It began trading under its own name on July 31. Backdoor listings help Chinese companies skirt regulations that require three successive years of profits to hold an IPO.

Northeast Securities Co. bought Liulu Industrial Co. and renamed it this month, becoming the fourth listed brokerage.