China Stocks Rise for First Time in Three Days; Air China Gains

By Zhang Shidong

Aug. 6 (Bloomberg) -- China's stocks rose for the first time in three days, led by banks and transport companies, after oil prices dropped and an official with the nation's pricing regulator said inflation may drop in the fourth quarter.

China Merchants Bank Co., the nation's biggest dual-currency credit-card issuer, and Air China Ltd. advanced as crude traded near $118 a barrel. Lower inflation eases pressure on the central bank to raise borrowing costs to curb rising prices.

``Investors have seen some reason to move into equities with oil dropping and inflation expectations easing,'' said Zhang Ling, who manages the equivalent of $1.1 billion at ICBC Credit Suisse Asset Management Co. in Beijing.

The CSI 300 Index, which tracks yuan-denominated A shares listed on China's two exchanges, rose 42.38, or 1.6 percent, to 2,745.46 at the 11:30 a.m. local-time break, snapping a two-day, 4.9 percent loss. The gauge earlier fell as much as 0.9 percent.

The measure has lost 49 percent this year, the worst performer among the world's top 20 benchmark indexes, on concern rising fuel prices and accelerating inflation will hurt earnings. The central bank this year ordered lenders to set aside a record amount in reserves to tame rising consumer prices after increasing interest rates six times in 2007.

Zijin Mining Group Co., China's largest gold producer, declined after prices of the bullion retreated.

Merchants Bank, the nation's biggest dual-currency credit- card issuer, gained 3 percent to 24.42 yuan. Citic Securities Co., China's biggest publicly traded brokerage, advanced 3.6 percent to 23.06 yuan.

Airlines Advance

Inflation may ease to 4.5 percent in the fourth quarter as pork price gains slow and a stronger yuan cuts import costs, Xu Lianzhong, head of the price analysis and forecast division at the National Development and Reform Commission's Price Monitoring Center, wrote in the China Securities Journal today. The consumer price index rose 7.1 percent in June.

Air China, the nation's largest international carrier, added 2.4 percent to 9.99 yuan. China Southern Airlines Co., the nation's biggest carrier by fleet size, rose 1.6 percent to 7.76 yuan. Jet fuel accounted for about 40 percent of Chinese airlines' costs in 2007, according to their annual reports.

Oil dropped $2.81 to $118.60 a barrel yesterday on speculation demand may be reduced by economic slowdowns in the U.S. and Europe. Oil has lost more than $28 since touching a record $147.27 a barrel on July 11.

Zijin Mining, China's largest gold producer, lost 1.8 percent to 6.58 yuan. Zhongjin Gold Corp., the second-largest, retreated 3.9 percent to 41.98 yuan.

Gold futures fell 2.4 percent to $886.10 an ounce in New York. Earlier, the price touched $883.90, the lowest since June 25, the last time the metal settled below $900.

The Shanghai Composite Index, which tracks the bigger of China's stock exchanges, gained 1.9 percent to 2,740.41. The Shenzhen Composite Index added 1 percent to 798.47.

To contact the reporter on this story: Zhang Shidong in Shanghai at szhang5@bloomberg.net