AgBank's performance in Shanghai and in Hong Kong -- where trading starts Friday -- will signal whether it is maximising the number of additional shares it can offer and has raised a record 22.1 billion US dollars.

The listing of the last of China's "Big Four" state banks will also test the resilience of the Chinese stock market in a volatile global economic climate.

Shares ended 0.82 percent higher in Shanghai on Wednesday, narrowing earlier gains as caution prevailed ahead of AgBank's mega-debut.

"It may be a turning point for the banking sector if AgBank's debut is solid," said Shen Jun, a strategist for BOC International, Bank of China's investment unit.

"It may drive up the whole banking sector and the broader market may move with it."

Despite performing better than their Western peers, Chinese bank shares faired poorly in the first half of 2010 as the benchmark Shanghai Composite Index dropped more than 25 percent.

China is on track to be the world's biggest IPO market this year with up to 300 companies expected to raise 500 billion yuan (73.6 billion dollars), according to PricewaterhouseCoopers.

Recent Chinese IPO shares have gained 29 percent on average in their first month of trading, according to Shanghai-based Jesa Investment and Management Co.

BOC's Shen told AFP: "The key factor to watch in AgBank's debut is whether it will fall below the IPO price. Falling below the IPO price will hit the market, but the chances of that are not big."

AgBank's debut Shanghai price is to be 2.68 yuan, but the total number of IPO shares is not yet known and will be determined by its market performance.

A strong start will prompt AgBank to fully exercise its over-allotment options by selling an additional portion of up to 15 percent of the number of shares initially issued -- making the IPO the world's largest.

Mainland analysts are optimistic AgBank will soar. Its shares are expected to rise five to 15 percent on debut, according to Soochow Securities.

Hong Kong investors are likely to follow Shanghai's lead, said Jonathan Siu, research analyst at investment bank Core Pacific-Yamaichi in Hong Kong.

"The performance of the Hong Kong listing will very much depend on (Shanghai)," he told AFP. "If the (Shanghai) shares perform well on their debut, then it should be the same in Hong Kong."

Siu predicted a five to 10 percent rise for the Hong Kong shares on listing day.

AgBank's history is intertwined with that of China itself. It was founded two years after Mao Zedong's 1949 communist revolution to lend money to poor farmers and distribute state money in rural areas.

But heavy exposure to China's poverty-stricken interior meant its mission was frustrated by decades of chaotic policies, leaving it awash with bad debt.

Despite Beijing's efforts to rehabilitate AgBank by wiping more than 345.8 billion yuan from its books, it remains the weakest of the Big Four.

"Whilst (AgBank's) cleaned-up book is in a better state than its Big Bank peers when they listed in 2005-2006, the fact remains that present asset quality is worse than all of its Big Bank peers now," Yuanta Securities analyst Ming Tan wrote in a report.

Observers are waiting to see how the bank manages the shift from rural-focused policy bank to profit-oriented listed company.

AgBank, which has about 24,000 branches, mostly in China, and more than 320 million customers, is expected to post a first-half net profit of more than 46 billion yuan, the official Shanghai Securities News reported this week.

That would represent an increase of around 40 percent from a year earlier, the report said.

It would also outpace the bank's previous projections of a full-year net profit of 82.9 billion yuan.

The bank's bad debt ratio dropped from 4.32 percent in 2008 to 2.91 percent in 2009, but experts say that figure is far higher than its rivals, with the company earning more than a quarter of its revenue from rural banking.

Despite all this, AgBank's Hong Kong sale drew almost a dozen heavyweight investors, including Qatar's sovereign investment fund, British bank Standard Chartered and Hong Kong's richest tycoon, Li Ka-shing.

Observers are waiting to see if the market can maintain that support and whether AgBank's shares defy gloomy global sentiment.

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