June 30 (Bloomberg) -- China's stocks declined, dragging the benchmark index to its worst month on record, as financial companies slumped amid speculation interest rates will be raised for the first time this year.

China Merchants Bank Co. and Shanghai Pudong Development Bank Co. led declines. Air China Ltd., the country's largest international carrier, and China Southern Airlines Co. advanced after regulators agreed to raise ticket surcharges starting tomorrow to help cover bloating fuel costs.

The benchmark CSI 300 Index fell 0.9 percent to 2,791.82 at the close, taking its June decline to 23 percent. That's the worst monthly performance since the measure was introduced in April 2005. Fourteen stocks fell for every 13 that rose, with six of 10 industry groups declining.

``We're taking a closer look but we're just finding better value and growth in Chinese companies that are not listed in China,'' said Andy Mantel, managing director of Pacific Sun Investment Management Ltd. in Hong Kong, in a Bloomberg Television interview. ``I'd be a bit wary.''

Jim Rogers, who said he hasn't sold any of the China equities he started buying in 1999, told investors two days ago not to ``give up'' on the nation's stock markets. The CSI 300 has declined 48 percent this year, the most among benchmark indexes in the world's 20 biggest equity markets, on speculation record oil prices and the fastest inflation in more than a decade will erode profit and dent consumer spending.

Gains, Losses

Zhou Xiaochuan, governor of the People's Bank of China, said in Basel, Switzerland that he can't rule out raising interest rates to curb rising prices. Inflation slowed to 7.7 percent in May, down from February's 12-year peak of 8.7 percent.

Fang Xinghai, director general of the government financial services office in Shanghai, said China's stocks are ``fairly valued'' after the CSI 300 slumped 53 percent from its record on Oct. 16.

Shares traded in Shanghai and Shenzhen rose to a record 53 times historic earnings in October last year, more than double their counterparts in the U.S., the world's biggest economy. This year's collapse has cut the CSI 300 Index's ratio to 20.4, cheaper than the Standard & Poor's 500 Index's 21.2.

China Minsheng Banking Corp. failed to sell its 3.26 percent stake in Haitong Securities Co. in auction for a second time, even after lowering the asking price by almost half.

``Start buying when others say `never again','' Rogers, 65, said on June 28 at an investor conference in Nanjing.

Merchants Bank

Merchants Bank, China's most profitable lender, declined 4.9 percent to 23.42 yuan, the biggest drag on the CSI 300. Pudong Bank, part-owned by Citigroup Inc., fell 4.3 percent to 22 yuan, the lowest close since May 23, 2007.

Air China gained 4.7 percent to 8.49 yuan, reversing an earlier loss after the Civil Aviation Administration of China and National Development and Reform Commission raised fuel surcharges from July 1, according to a statement on the government's Web site. China Southern Airlines Co., based in the southern city of Guangzhou, jumped 4.9 percent to 7.12 yuan.

The following shares also rose or fell in China. Stock symbols are in brackets after company names.

Xi'an Aircraft International Corp. (000768 CH), a maker of aircraft parts, climbed 6.4 percent to 17.02 yuan. Its parent company, Xi'an Aircraft Industry Group Co., is planning a September test flight for its turboprop and sales of the 60-seat plane will start next year, Xinhua News Agency reported, citing President Lin Zuoming.

Shanghai Lujiazui Finance & Trade Zone Development Co. (600663 CH), a real-estate developer based in Shanghai, rose by the 10 percent daily limit to 13.61 yuan, after a report that Walt Disney Co. will build a 40 billion yuan ($5.8 billion) theme park in Shanghai's Pudong area. Alannah Hall-Smith, a Disney spokeswoman, said in a June 28 e-mail that ``there is no agreement and there is no deal.''

Tangshan Jidong Cement Co. (000401 CH), the Chinese affiliate of Germany's biggest producer HeidelbergCement AG, gained 7.3 percent to 12.45 yuan, after raising 2.96 billion yuan from selling new shares to fund expansion.

To contact the reporter responsible for this story: Chua Kong Ho in Shanghai at Kchua6@bloomberg.net

Last Updated: June 30, 2008 04:16 EDT