April 10 (Bloomberg) -- China’s stocks rose to the highest in almost eight months, led by developers on speculation the central bank will lower borrowing costs for the first time this year, and as investors expect corporate earnings to improve.

Poly Real Estate Group Co., China’s second-largest developer by market value, added 3.3 percent. China Merchants Bank Co. gained 1.6 percent after reporting higher profit last year. Jiangxi Copper Co. jumped by the 10 percent limit after prices of the metal rose to a five-month high, while Baoding Tianwei Baobian Electric Co. climbed 4.6 percent on expectation the government will bolster the use of renewable energy.

“There is speculation about cuts in interest rates and reserve ratios, which will boost liquidity,” said Larry Wan, deputy chief investment officer at KBC-Goldstate Fund Management Co. in Shanghai, which oversees $583 million in assets. “The market also expects economic figures for March to beat forecasts, which will lead to a turnaround in earnings.”

The Shanghai Composite Index, which tracks the bigger of China’s stock exchanges, rose 64.35, or 2.7 percent, to 2,444.23 at the close, the highest since Aug. 20. It has risen 1 percent this week, the fourth weekly gain.

The CSI 300 Index, measuring exchanges in Shanghai and Shenzhen, added 3.1 percent to 2,595.53.

The Shanghai Composite’s 34 percent gain this year makes it the second-best performer among 88 key stock gauges tracked by Bloomberg globally. Stocks rallied on optimism the government’s 4 trillion yuan ($585 billion) stimulus package and record new lending will spur a recovery in the world’s third-largest economy amid the global recession. Interest rates were cut five times from September to December.

Falling Exports

The rate cut speculation also came as China’s exports fell for a fifth month in March, adding to the urgency of government efforts to stimulate domestic demand to revive growth.

Overseas sales declined 17.1 percent to $90.29 billion from a year earlier, the state-run Xinhua News Agency reported, citing customs data. Imports dropped 25.1 percent, leaving a trade surplus of $18.56 billion.

The Shanghai Composite is now trading at 20 times earnings, the highest among the so-called BRIC nations of Brazil, Russia, India and China, according to data compiled by Bloomberg.

Ping An Insurance (Group) Co., China’s second-largest insurer, considers it risky to boost holdings of Chinese shares at current valuations, Deputy Chief Investment Officer Timothy Chan said in Shanghai yesterday.

Poly, Gemdale

Poly Real Estate advanced 3.3 percent to 22.75 yuan. Gemdale Corp., a Chinese developer that’s setting up a real- estate venture with UBS AG, gained 4 percent to 11.25 yuan.

Merchants Bank, the nation’s fifth-largest by market value, rose 1.6 percent to 16.14 yuan after it said 2008 profit rose 38 percent from a year earlier.

“Money is still moving into equities when investors see good earnings and good news,” said Yan Ji, an investment manager at HSBC Jintrust Fund Management Co. in Shanghai, which manages the equivalent of about $850 million.

Jiangxi Copper, the country’s biggest copper producer, jumped the maximum 10 percent to 25.72 yuan. Tongling Nonferrous Metals Group Co., the No. 2, climbed 8.6 percent to 16.06 yuan. PetroChina Co., the nation’s biggest oil company, added 1.7 percent to 11.48 yuan.

Crude oil for May delivery rose $2.86 to settle at $52.24 a barrel in New York yesterday, as better-than-expected earnings boosted expectation the economy is stabilizing. Copper futures for May delivery added 3.6 percent to $2.071 a pound in New York. The metal surged 5 percent in Shanghai today.

Commodity Stocks

“I still favor commodity stocks because metals prices have already bottomed out,” said Chen Wenzhao, a strategist at China Merchants Securities Co. in Shanghai.

Tianwei Baobian, which makes solar-power cells, rose 4.6 percent to 38.16 yuan, the highest since June 3. Xinjiang Goldwind Science & Technology Co., the country’s biggest maker of wind turbines, surged 9.6 percent to 42.95 yuan, its highest since July 3.

The nation aims to boost renewable energy to 10 percent of total energy consumption by 2010 from 7.5 percent. The government said last month it would pay a subsidy for solar power projects. China, the world’s second-biggest consumer of energy, derives 80 percent of its electricity from burning coal.

The following companies were among the most active in China’s markets. Stock symbols are in brackets after companies’ names.

China Southern Airlines Co. (600029 CH), the nation’s biggest carrier by fleet size, surged the 10 percent daily cap to 5.79 yuan. China Southern said it received a 20 billion yuan credit line from China Construction Bank Corp., to fund fleet expansion.

Shanghai Electric Power Co. (600021 CH), the supplier of a third of the electricity in China’s richest city, added 0.9 percent to 4.37 yuan. The company said it may post a first- quarter net income of about 38 million yuan.

To contact the reporter on this story: John Liu in Shanghai at jliu42@bloomberg.net

Last Updated: April 10, 2009 04:42 EDT