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China's B Shares Surge; Biggest Three-Day Gain in Six Years

China's foreign-currency B shares rose to a record, completing the biggest three-day gain in more than six years, as their discount to yuan-denominated A shares drew local investors.

The Shanghai (SHBSHR) B-Share Index jumped 6.9 percent to 269.99 at 3 p.m. local time close, after surging 17 percent in the past two trading days. That's the largest three-day rally since March 2001. The Shenzhen B-Share Index added 4.8 percent to 713.53. Both indexes are at the highest they've been since they were introduced in 1992.

Shanghai Lujiazui Finance & Trade Zone Development Co., a real estate developer in Shanghai's financial district, jumped by the 10 percent limit to $2.25. The developer's B shares are valued at 54 times earnings, versus 87 times for their A shares.

Dazhong Transportation (Group) Co., which operates Shanghai's second-biggest taxi fleet, climbed by the 10 percent daily limit to $1.65. The company's B shares are valued at 62 times earnings, compared with 128 times for the A shares.

``People have flocked to open new accounts to buy B shares for gains,'' said Lu Jiehua, an analyst at Shenyin Wanguo Research and Consulting Co. in Shanghai. ``B shares are likely to extend rallies as long as A shares keep rising.''

B shares, which can only be bought and sold by domestic individuals and overseas investors, are traded in U.S. dollars in Shanghai and Hong Kong dollars in Shenzhen. (SZBSHR) Overseas investors are restricted from buying China's yuan-denominated A shares, which are more heavily traded.

China's B-share market was set up in 1992 to give local companies a way to raise funds from foreign investors, who were banned from buying securities denominated in yuan. The government's 2003 decision to ease the ban starved the B-share market, which hasn't had an initial stock sale in three years.

To contact the reporter on this story: Jiang Jianguo in Shanghai at jjiang@bloomberg.net

To contact the editor responsible for this story: Tom Kohn at tkohn@bloomberg.net

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