Nov. 10 (Bloomberg) -- China Railway Group Ltd., Asia's biggest construction company, and Angang Steel Co. led gains in Shanghai and Hong Kong after China's government said it will spend 4 trillion yuan ($586 billion) to bolster the economy.

China Railway Group closed 18 percent higher at HK$5.1 in Hong Kong. Angang Steel, the nation's second-biggest steelmaker which makes rail steel, surged 27 percent to HK$6.3. Anhui Conch Cement Co., China's biggest maker of the material, climbed 31 percent to HK$35.50.

The stimulus package, equivalent to almost a fifth of China's gross domestic product last year, will be used by the end of 2010, the Beijing-based State Council said yesterday on its Web site. The fund will go toward low-rent housing and the expansion of railways, roads and airports.

``Steel demand will be the first to benefit,'' said Helen Lau, a Shanghai-based analyst from Daiwa Securities Group Inc. ``We will see consumption accelerating from the second to third quarter after steelmakers deplete stockpiles.''

The government plans to spend 100 billion yuan this quarter from the stimulus package, boosting investment in housing, roads, railways and airports. It will also allow tax deduction for purchases of assets such as machinery.

Rebuild Confidence

``The railway builders will react soon under the two-year plan,'' said Hu Shunliang, Maanshan Iron & Steel Co.'s board secretary. ``They may start steel purchase next month or December. People have been pessimistic about the market. The plan will help rebuild their confidence.''

The Maanshan, Anhui province-based company controls 60 percent of China's steel wheel market. It's also the nation's second-biggest maker of H beams, used in buildings and bridges, after Laiwu Steel Corp. Maanshan Steel surged 35 percent to close at HK$2.26 in Hong Kong.

China's steel production, the largest in the world, will rise at least 5 percent next year on the plan, Daiwa Securities' Lau forecast. The broker will revise its forecast of a 5 percent drop in the 2009 output, she said.

China's crude-steel output may rise only 2.2 percent to about 500 million tons this year, compared with an earlier forecast of 540 million tons, the China Iron & Steel Association said Oct. 23.

Steelmakers have slashed production because of declining orders from builders and carmakers amid the slowest economic growth in five years. All Chinese steelmakers were unprofitable in October after steel prices dropped, according to the association.

Lower Costs

The stimulus plan presents ``a lot of opportunities,'' China Railway Construction Corp. Board Secretary Li Tingzhu said today by phone. Tax breaks for the purchase of fixed assets including machinery will also cut costs at the Beijing-based company, he said.

China Railway Construction, builder of more than half the nation's railroads, gained 20 percent to close at HK$10.70.

The extra spending may boost the nation's economic growth by 2 percentage points next year, said Xing Ziqiang, an economist at China International Capital Corp. in Beijing. UBS AG and Credit Suisse AG, before yesterday's announcement, forecast GDP would rise no more than 7.5 percent next year, which would be the smallest increase in nearly two decades.

China is trying to stop an economic slowdown from deepening as exports wane, manufacturing cools and a property slump undermines domestic demand.

China National Building Material Co., the country's second- biggest cement maker, surged 42 percent to HK$5.75 in Hong Kong. Wuhan Iron & Steel Co., the nation's third-biggest mill, rose by 10 percent daily limit to close at 5.01 yuan in Shanghai.

To contact the reporters for this story: Helen Yuan in Shanghai at hyuan@bloomberg.net; Lee Spears in Beijing at lspears2@bloomberg.net

Last Updated: November 10, 2008 03:41 EST