UBS HAS become the first overseas investor to offload its holding in a major Chinese bank, in a move expected to be followed by cash-strapped foreign rivals.

Switzerland's largest bank this week raised $835 million (€596.94 million) by selling its 3.4 billion shares in the Hong Kong-listed arm of Bank of China in a discounted institutional placing.

It acquired the 1.3 per cent stake for $500 million in 2005, a year before it advised on the stock market listing of the mainland lender. The move follows the expiry of a three-year lock-up period. Dealmakers believe it will herald similar divestments by foreign banks, which had rushed to take stakes in mainland lenders in 2005 and 2006.

Many of these foreign lenders now need to repair their balance sheet following the financial crisis.

Foreign financial institutions, including Goldman Sachs, Citigroup, Dresdner Bank, Temasek and Royal Bank of Scotland, hold shares in China's leading banks.

Beijing remains sensitive about such share sales, fearing that a mass exit could undermine official support for the domestic banking sector. However, the deal will help to soothe fears among some international investors that Beijing could make it difficult for them to offload their lucrative holdings.