March 16 (Bloomberg) -- China’s stocks rose, erasing earlier losses, as banks and automakers climbed on speculation a surge in lending and government support will boost earnings.

Industrial Bank Co., partly owned by a unit of HSBC Holdings Plc, jumped 7 percent. Bank of Communications Ltd., scheduled to report 2008 earnings in two days’ time, climbed 3.1 percent. SAIC Motor Co., the nation’s largest carmaker, added 2.7 percent after the government said it will give farmers subsidies to boost vehicle purchases.

“The continued increase in lending is boosting speculation that the economy is rebounding and this is beneficial for banks,” said Li Qing, Shanghai-based analyst at CSC Securities HK Ltd.

The Shanghai Composite Index, which tracks the bigger of China’s stock exchanges, gained 24.44, or 1.2 percent, to 2,153.29 at the close, reversing a decline of 1 percent. The gauge slid 2.9 percent last week after exports plunged and industrial output grew weaker than estimated.

The CSI 300 Index, measuring exchanges in Shanghai and Shenzhen, rose 1.6 percent today.

China’s new loans more than quadrupled in February from a year earlier after the government pressed banks to support a 4 trillion yuan ($585 billion) stimulus package for the world’s third-biggest economy. Banks extended 1.07 trillion yuan of local-currency loans, the central bank said March 12.

Growth Target

The government is trying to boost domestic spending as the global recession cuts demand for the nation’s exports and trims investment by overseas companies. Foreign direct investment in China fell 15.8 percent from a year earlier last month, the fifth straight month of declines, data from the commerce ministry showed today.

Premier Wen Jiabao reaffirmed the nation’s 8 percent growth target for 2009 as he closed the annual meeting of the National People’s Congress on March 13, saying China has “adequate ammunition” to add extra stimulus if necessary.

Industrial Bank jumped 7 percent to 21.16 yuan. Bank of Communications added 3.1 percent to 5.71 yuan after Goldman Sachs Group Inc. raised its rating on the lender’s Hong Kong- listed shares to “neutral” from “sell.” Shanghai Pudong Development Bank Co., the Chinese partner of Citigroup Inc., climbed 4.5 percent to 19 yuan.

Optimism increased spending will revive the economy has lifted the Shanghai Composite 18 percent this year. That’s the biggest gain among 89 benchmark indexes tracked by Bloomberg. Still, the index has lost 9.9 percent from its 2009 peak on Feb. 16 on concern gains have pushed valuations too high relative to earnings prospects.

Hong Kong Gap

Shares in the CSI 300 traded at 16.2 times earnings this month, compared with 8.6 times for 43 mainland companies in Hong Kong. PetroChina Co., the country’s biggest company, fetches twice the valuation in China as in Hong Kong.

While China is the only one of the world’s five biggest economies still expanding, the pace has slowed for six quarters after peaking at 12.6 percent between April and June in 2007. The economy may expand 6.7 percent this year, the slowest rate in almost two decades, according to the Washington-based International Monetary Fund.

SAIC rose 2.7 percent to 9.10 yuan. Dongfeng Automobile Co., which makes light trucks in China with Nissan Motor Co., added 3.1 percent to 4 yuan. Jiangling Motors Corp., the Chinese commercial vehicle partner with Ford Motor Co. gained 7.5 percent to 12 yuan.

Farmer Incentive

Farmers who buy minivans or light trucks will be entitled to funding equivalent to 10 percent of the vehicle’s price, with a maximum subsidy of 5,000 yuan, the Ministry of Finance said at the end of last week.

Beiqi Foton Motor Co., the nation’s biggest commercial- vehicle maker, added 2.4 percent to 8.67 yuan. The company said sales in January and February rose 10.6 percent from last year.

Huaxin Cement Co., the Chinese affiliate of Holcim Ltd., lost 1.9 percent to 22.29 yuan, after saying it plans to raise as much as 4 billion yuan by issuing new shares in a private placement to finance an expansion in production.

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

Last Updated: March 16, 2009 04:42 EDT