Bank of China (BOC) said yesterday it had sold a 10 billion yuan ($1.2 billion) stake to the nation's social security fund, moving the firm a step closer to an initial public offering (IPO) in Hong Kong.

The sale was one stage of a plan that will eventually lead to the IPO, expected this year.

"We completed a 4 to 5 percent sale to the State Welfare Fund on Wednesday," spokesman Wang Zhaowen said. "The IPO scheme is going smoothly in accordance with our original plan."

Media reports last week suggested that the bank had already filed an application with the Hong Kong Stock Exchange for the IPO, but Wang refused to confirm the rumor.

In August the bank named Goldman Sachs Group Inc, UBS and Bank of China International its financial advisors.

Last December, the bank said it had signed strategic investment agreements with the Royal Bank of Scotland Group, Swiss-based bank UBS, Singapore-headquartered Temasek and the Asian Development Bank.

The four strategic investors will buy a total of 16.9 percent of the Bank of China.

Initially, Temasek wanted to buy a 10 percent stake, but the Central Huijin Investment Co, the Bank of China's parent firm, did not approve.

Eventually, Central Huijin agreed to sell 5 percent to Temasek.

The Bank of China, the country's largest foreign exchange leader, was picked by the government as a pilot firm to take part in the country's banking reform process.

It reorganized itself into a joint-stock company named Bank of China Limited in August, 2004, following a capital injection of $22.5 billion from the government in late 2003.

The bank has not yet released its financial results for last year.

Earlier figures suggest the bank's non-performing credit rate declined to 4.38 percent at the end of last June, from 5.12 percent at the beginning of the year.

Its capital adequacy ratio stood at 10.04 percent at the end of 2004.