SHANGHAI stocks opened higher this morning amid reports that China's securities regulator may relax rules on foreign investment in the domestic capital market even though the country's manufacturing sector may have expanded at the slowest pace in four months.

The key Shanghai Composite Index added 0.3 percent to 2,321.12 points. Turnover was 43.6 billion (US$7 billion) by midday.

The China Securities Regulatory Commission will soon implement revised rules, allowing more foreign institutions to participate in the Renminbi Qualified Foreign Institutional Investor scheme and invest in the domestic capital market with offshore yuan, the official Xinhua News Agency reported yesterday.

Currently, only fund management companies and securities firms can join in the scheme.

The regulator will also scrap the rules requiring foreign investors to put at least 80 percent of their yuan funds in the bond market and no more than 20 percent of their funds in the stock market, according to Xinhua.

The move will encourage more capital to flow into the domestic securities market, Xinhua said.

The HSBC Flash China Purchasing Managers' Index, the earliest indicator of the country's economic conditions, fell to 50.4 in February, down from a two-year high of 52.3 in January, HSBC Holdings PLC announced today.

The index is a gauge of manufacturing activity slanted more towards private and export-oriented firms. A reading of 50 or above indicates the activity is expanding.

Brokerages gained among financial stocks. CITIC Securities, China's biggest listed brokerage, added 0.4 percent to 13.77 yuan. Founder Securities Co jumped 4.6 percent to 5.88 yuan. Haitong Securities Co advanced 1 percent to 11.61 yuan.

Most property developers lost. Poly Real Estate, China's second-largest developer, declined 2.7 percent to 12.06 yuan. Gemdale Corporation dropped 2.9 percent to 6.72 yuan.