Shares in China Railway Group 601390.SS, the world's third-largest construction contractor, rose 69 percent on their Shanghai debut on Monday, calming investor fears that big Chinese listings could be running out of steam.

Buoyed by its near monopoly of China's fast-growing railway construction sector, China Railway 0390.HK raised $3 billion in its Shanghai initial public offer, mainland China's eighth-biggest. It raised another $2.5 billion from an IPO in Hong Kong, where it debuts on Friday.

Analysts had warned a lackluster debut could dent confidence in Shanghai and Hong Kong, where markets have seen steep falls in recent weeks, but many saw China Railway's debut as reasonable and a potentially stabilizing influence.

China Railway's closing price inclined slightly to the high end but was more reasonable than many previous debutants, whose first-day prices hit 30 or even 50 percent higher than analysts had expected, said analyst Zhou Lin at Huaxia Securities.

Its relatively good debut bodes well for coming large IPOs. At the same time, it could be followed by a slow but steady rise, which would help stabilize the index, he said.

The local-currency A shares closed at 8.09 yuan, compared with an IPO price of 4.8 yuan, valuing China Railway at nearly $23 billion. Analysts had predicted opening day gains of anywhere between 50 and 80 percent.

The benchmark Shanghai Composite Index .SSEC ended Monday down 0.07 percent, and has dropped by more than a fifth from a record high in mid-October.

Retail investors who grabbed shares during China Railway's IPO appeared to be happy with the pricing. The offering had attracted a record $457 billion in subscriptions.

New stocks are like a chance for us to win a prize, said Wu Laidi, who bought 1,000 shares in the IPO. We can recoup some of our funds from this because we have lost quite a bit in the market.

SHIPPER NEXT

While the Shanghai market has tumbled amid worries about inflation cooling measures, slower corporate earnings growth and the influx of new shares, investors have sought the relative safety of share offers by state-owned firms, which tend to be priced conservatively.

Analysts expect Shanghai's next big IPO, by China Shipping Container Lines Co (2866.HK: Quote, Profile, Research), to raise up to $2 billion when it is launched this week.

China Railway's Hong Kong offering has attracted nine cornerstone investors including China Investment Corp, China Life Insurance's (601628.SS: Quote, Profile, Research) (2628.HK: Quote, Profile, Research) (LFC.N: Quote, Profile, Research) parent and Henderson Land (0012.HK: Quote, Profile, Research) Chairman Lee Shau Kee.

Some analysts have said they were pessimistic over China Railway's Hong Kong listing due to weakness in the IPO market.

Shares in Sinotrans Shipping Ltd 0368.HK fell 13 percent on their recent debut while those in Sinotruk (Hong Kong) Ltd 3808.HK slipped 16 percent.

China Railway's combined $5.5 billion IPO was the fifth-largest this year in Greater China, according to Thomson Financial data. It also ranks as the fourth most popular IPO for Hong Kong individuals.

Analysts rate China Railway, which has built more than 230 projects in 55 countries, as a long-term hold as it gains from massive infrastructure spending and expands overseas.

The Chinese government gives the lion's share of its railway construction work to China Railway Group and state-owned China Railway Construction Corp, which is set to go public next year.

China's railway investment has lagged economic growth of at least 10 percent a year since 2002. Beijing has now budgeted 1.2 trillion yuan in 2006-2010 for rail investment, more than four times the figure for the previous five years.

China Railway enjoys a near monopoly in China's railway construction projects, and along with the government's plan to invest more in the sector, its potential is healthy, said construction industry analyst Luo Guo at Orient Securities.

That should allow China Railway's share price to enjoy a reasonable premium against other Chinese construction firms.

Based on the A-share close of 8.09 yuan, China Railway has a price-earnings ratio of 43 times forecast 2007 earnings, slightly higher than an average 41 times for 15 domestically listed construction firms, but dearer than international peers' 24 times, according to Reuters Estimates.

($1=7.39 Yuan)

(Additional reporting by Royston Chan; Editing by Edmund Klamann & Ian Geoghegan)

China Investment