June 18 (Bloomberg) -- China's stocks rose for the first time in 11 days after the benchmark index fell 50 percent from its record high and some investors judged the losses as overdone.

The CSI 300 Index advanced 148.60, or 5.2 percent, to 2,991.27 at the close, its biggest advance since April 24. The gauge has lost $1.2 trillion, more than India's market capitalization, since its October peak.

Stocks gained on speculation the government will intervene to support the market following its 10-day, 22 percent rout, which cut the benchmark index's price earnings ratio to the lowest in two years. Shares had fallen on concern central bank measures to combat rising inflation will erode earnings growth.

``Valuations may seem a bit dear still, but in comparison to past levels things have gotten much more reasonable,'' said Michiya Tomita, who oversees about $264 million in Chinese equities for Mitsubishi UFJ Asset Management Co. in Hong Kong.

China Merchants Bank Co., the nation's biggest dual-currency credit-card issuer, advanced 4.1 percent to 24.88 yuan. The stock slumped 20 percent over the past nine days. Shanghai Pudong Development Bank Co., the Chinese partner of Citigroup Inc., added 4.7 percent to 25.23 yuan. Citic Securities, China's biggest publicly traded brokerage, rose 6.1 percent to 26.27 yuan.

The 14-day relative strength measure for the CSI 300 was at 20 yesterday. Relative strength indexes show how rapidly prices have advanced or dropped during a specified time period. Readings below 30 indicate it may be poised to rise.

China Securities Regulatory Commission spokesman Zhang Wangjun declined to comment on the speculation.

Government Measures

``There is a lot of speculation about market-boosting measures, given the market has dropped so much,'' said Wei Wei, an analyst at West China Securities Co. in Shanghai.

Petrochina Co. alone has lost more than $600 billion of market value since becoming the world's first $1 trillion company when its stock debuted in Shanghai in November. Citic Securities has tumbled 54 percent from the CSI 300's peak on Oct. 17.

The government may limit share sales, increase the funds that local banks and insurers can invest or raise the amount that foreign institutions can spend on China's stocks and bonds, Jing Ulrich, JPMorgan's chairwoman of China equities, wrote in a report e-mailed today. Any positive impact may not last, she said.

``As with other recent measures, the boost to investor confidence may be short-lived,'' Ulrich wrote in the report. ``Many investors view the government's price controls and macro- tightening policies as being responsible for weakening the profitability of major companies.''

The central bank required lenders to set aside a record amount of money as reserves this year after raising interest rates six times in 2007.

`Like Opium'

The CSI 300 surged fivefold in the past two years driven by local investors who, at the peak, were opening more than 300,000 brokerage accounts a day. The rally made Chinese stocks the most expensive among the world's largest equity markets. Investors were drawn by soaring corporate profits, economic growth at more than 10 percent and returns higher than the rate of inflation.

Now investors are shifting their money into cash. Household deposits rose by 236.9 billion yuan ($34.3 billion) in May from the previous month, according to central bank data. Fewer than 40,000 accounts were opened daily in the first two weeks of June, according to the China Securities Depository & Clearing Corp.

``Stocks are just like opium and I will never touch them again,'' said Xu Xiaohong, a 63-year old retiree. ``I have lost confidence and want to sell all my shares.'' Xu, who spoke at a branch of Shenyin & Wanguo Securities Co. at Lujiazui in Shanghai, said he owns stock in companies including Baoshan Iron & Steel Co. and China Merchants Bank.

Trading Volume

Trading by individual investors accounts for about 60 percent of market volume, according to estimates by Shanghai- based brokerage Guotai Junan Securities Co. In the U.S., individuals account for only 5 percent of trading.

China Petroleum & Chemical Corp. and PetroChina, the country's two top refiners, advanced after Zhang Xiaoqiang, vice chairman of China's National Development and Reform Commission, said yesterday the government will use ``prudence'' in raising fuel prices.

China Petroleum, also known as Sinopec, jumped by the 10 percent daily limit to 13.01 yuan. PetroChina rose 5.6 percent to 16.09 yuan.

China's government controls prices of gasoline, diesel and jet fuel for local consumption, restricting the ability of oil refiners to pass rising crude oil costs on to customers.

The Shanghai Composite Index, which tracks the bigger of China's stock exchanges, advanced 5.2 percent to 2,941.12. The Shenzhen Composite Index gained 5.1 percent to 843.19.

The following stocks rose or fell and the stock symbols are in brackets after companies' names.

Baoshan Steel (600019 CH), China's biggest steelmaker, rose 0.39 yuan, or 3.7 percent, to 10.92, the biggest gain since May 28. The company said it will sell up to 10 billion yuan ($1.5 billion) in six-year bonds on June 20 to help pay for the acquisition of a plant from its parent.

Sany Heavy Industry Co. (600031 CH), China's biggest maker of machinery for handling concrete, jumped 2.79 yuan, or the 10 percent daily cap, to 30.67. The company says its parent won't sell shares after a lock-up period ends to support shareholders. About 518 million shares will be locked up for another two years, it said.

To contact the reporter on this story: Zhang Shidong in Shanghai at szhang5@bloomberg.net; Patrick Rial in Tokyo at prial@bloomberg.net.

Last Updated: June 18, 2008 06:34 EDT