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

The key Shanghai Composite Index added 0.5 percent to close at 2,325.82 points. Trading volume was 77.6 billion yuan (US$12.3 billion).

The China Securities Regulatory Commission will soon implement revised rules, allowing more foreign institutions to participate in the Renminbi Qualified Foreign Institutional Investor scheme so that they can invest in the domestic capital market with offshore yuan, 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 yuan funds in the bond market, with no more than 20 percent of funds going to 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 condition, 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 activity is expanding.

"Despite the moderation, the index stayed above the 50 critical line for the fourth consecutive reading, indicating China's economy remains on track for a mild recovery," said Qu Hongbin, chief China economist for HSBC.

Brokerages gained among financial stocks as a pilot program of refinancing for short selling will launch on Thursday. CITIC Securities, China's biggest listed brokerage, added 1 percent to 13.84 yuan. Founder Securities Co jumped 5.9 percent to 5.95 yuan. Haitong Securities Co advanced 1 percent to 11.61 yuan.