Shanghai Pudong Development Bank , nearly 4 percent owned by Citigroup Inc , plans to raise about 40 billion yuan ($5.6 billion) by selling new shares, in a move likely to weigh on China's sputtering stock market.

Three people briefed on the situation said on Wednesday that the bank plans to issue 1 billion new shares in the first half of this year, under a five-year fund-raising programme launched last year to boost its core capital as it rapidly expands lending.

If successful, Pudong Bank's proposed new share sale could be the largest-ever equity refinancing by a Chinese firm. Sinopec , Asia's top oil refiner, is currently set to take that title with an issue of up to 30 billion yuan of convertible bonds on Wednesday.

Ping An Insurance Co , China's second-biggest life insurer, announced late last month that it aimed to issue about $22 billion of new shares and convertible bonds, which helped to trigger a sharp fall in the domestic stock market over the past month.

Most market watchers expect Ping An's share-sale plan will be voted down at a March 5 shareholders' meeting, however, as the insurer has not made clear why it wants to raise such a large volume of funds.

But analysts believe Pudong Bank's sale plan could win support from regulators and shareholders, given the clear objectives for the refinancing.

The benchmark Chinese stock index has fallen about 12 percent so far this year, after doubling in 2007 and surging 130 percent in 2006, partly because local investors are worried about hefty supplies of new shares in the market amid tightening market liquidity as Beijing moves to cool down its economy.

The bank has hired UBS's Beijing-based investment banking joint venture and China CITIC Securities to jointly handle the proposed new stock sale, the people briefed on the situation.

Board members of Pudong Bank are expected to hold a meeting as early as next week to vote on the share sale plan, which would also be subject to approvals from its shareholders and Chinese regulators, said the people, who declined to be identified before an official announcement is made.

A Pudong Bank spokeswoman said she did not have any information to release at the moment, when asked for comment on the possible stock sale.