THE key stock index reversed morning losses to close higher yesterday as bargain hunting set in after the gauge went below the 3,000 mark, fanning belief that recent drops might have been excessive.

The benchmark Shanghai Composite Index finished at 3,147.79, up 0.99 percent. The index, which was down 3.03 percent in morning trade, tumbled to a low of 2,990.79 before buyers started to make a move.

Still, losers outnumbered gainers 609 to 277 while 22 counters were unchanged.

Turnover dropped to 58.1 billion yuan (US$8.3 billion), down from 75.3 billion yuan a day before.

"The loss of the 3,000 territory sparked a strong technical rebound as many investors deemed it as a support level,'' said Luo Wei, a China Securities Co trader. "But in the short term, the index lacks momentum to rise further and it may face greater volatility."

The decline in early trading came on the heels of a modest 0.72-percent rise on Monday after the securities regulator announced rules to prevent large batches of previously non-tradable stocks from swarming the market.

The China Securities Regulatory Commission said on Sunday that big shareholders who hope to sell more than 1 percent of a listed firm's total shares within a month must do so through off-market block trading.

But "investors are apparently waiting on the sidelines for more supporting signals from the government,'' said Liu Yu, an Orient Securities Co trader. "The short-term index movement will be volatile amid bargain hunting and profit taking."

Leading the rebound yesterday was Industrial & Commercial Bank of China, which added 2.50 percent to 6.14 yuan. Ping An Insurance Group Co, the nation's second largest life insurer, closed 1.98 percent higher at 58.13 yuan after losing nearly four percent in the morning.

China Pacific Insurance (Group) Co, the nation's third-largest insurer, edged up 0.08 percent to 23.73 yuan. It said its first-quarter profit rose 34 percent to 1.79 billion yuan.

Huaxia Bank Co, partly held by Deutsche Bank AG, jumped 6.57 percent to 11.84 yuan after the Beijing-based lender said its first-quarter profit probably rose more than 80 percent because of improved interest spreads and higher fee income.

Among losers, Jiangxi Copper Co lost 3.63 percent to 24.92 yuan while Zhongjin Gold Corp, the country's biggest producer of the metal, slumped 6.37 percent to 54.78 yuan and Shandong Gold, the second biggest, erased 4.30 percent to 115.37 yuan.