China Stocks Gain on Speculation Monetary Tightening Will Ease

By Chua Kong Ho

July 28 (Bloomberg) -- China's stocks rose, led by banks and developers, on speculation the government will ease policies to fight inflation after the government's top decision-making body dropped a reference to ``tight'' monetary policy in a statement.

China Merchants Bank Co. and China Vanke Co., the nation's largest real-estate company, led gains. Yanzhou Coal Mining Co., a unit of China's fourth-largest producer of the fuel, climbed after saying first-half profit may have tripled.

``This is the first signpost for recovery in China's stock market, and we expect sentiment to be better,'' said Mark Tan, a Singapore-based portfolio manager at UOB Asset Management Ltd., which oversees about $3 billion in Asian equities. ``The government is still worried about inflation but it's not going to accelerate for the rest of the year.''

The CSI 300 Index, which tracks yuan-denominated stocks traded in Shanghai and Shenzhen, rose 44.46, or 1.5 percent, to 2,983.66 as of 1:11 p.m. local time, headed for the highest since July 9. About 10 stocks fell for each that advanced, with financial shares contributing the most to the gain.

The benchmark index has declined 44 percent this year, the most among the world's 20 biggest equity markets, on concern measures to fight inflation and record crude oil prices will erode earnings. China's Politburo, the Communist Party's top decision-making body, said maintaining growth and fighting inflation were the top priorities in the second half of 2008.

`More Cautious'

The Politburo statement, reported by state-run China Central Television on July 25, omitted the mention of ``tight'' monetary policy, a term used in previous government statements. China's economic growth slowed to 10.1 percent in the second quarter as the government curbed lending this year. The central bank has imposed loan quotas and ordered lenders to set aside a record 17.5 percent of deposits as reserves to soak up liquidity in the economy.

``The government will be more cautious in imposing additional tightening measures, which will help stabilize investor confidence in stocks in the near term,'' wrote Zhang Dongyun, a strategist at Shanghai-based Haitong Securities Co., in a note today.

Merchants Bank, a Shenzhen-based lender, gained 3.1 percent to 25.48 yuan. Shanghai Pudong Development Bank, the Chinese partner of Citigroup Inc., climbed 2.5 percent to 24.51 yuan.

Shenzhen-based China Vanke added 2.2 percent to 9.35 yuan, while rival Poly Real Estate Group Co. advanced 1.5 percent to 17.16 yuan.

Profit Forecast

Yanzhou Coal gained 2.9 percent to 19.46, the most since July 21, after the Shandong-based mining company said first-half profit will likely triple in the first half from 1.11 billion yuan ($161 million) in the year-earlier period. China Shenhua Energy Co., the nation's largest coal supplier, advanced 2.9 percent to 33.11 yuan.

The Shanghai Composite Index, a measure of stocks on the larger of China's two exchanges, gained 1.7 percent to 2,913.094. The Shenzhen Composite Index advanced 1.4 percent.

The following stocks also rose or fell in China. Stock symbols are in parentheses after company names:

Guangzhou Shipyard International Co. (600685 CH), a unit of China's biggest shipbuilder, advanced 0.60 yuan, or 2.3 percent, to 27.18, after agreeing to pay 3.04 billion yuan to buy an affiliate to boost its capacity and expand into making smaller container ships.

PetroChina Co. (601857 CH), the country's largest oil company, gained 0.27 yuan, or 1.8 percent, to 15.34, after its units received licenses to sell crude oil and refined oil products in the country.

Shanghai Yuyuan Tourist Mart Co. (600655 CH), a Chinese shopping mall operator, fell 3.24 yuan, or the 10 percent daily limit, to 29.20 after scrapping plans to sell shares.

To contact the reporter responsible for this story: Chua Kong Ho in Shanghai at kchua6@bloomberg.net