China’s Stocks Gain, Led by Materials Producers; ICBC Declines

China’s stocks rose, led by producers of materials and consumer staples, as investors speculated losses that drove the benchmark index to a six-week low were excessive.

Jiangxi Copper Co. climbed 2.5 percent and PetroChina Co. gained 0.8 percent as metal and oil prices rebounded. Kweichow Moutai Co. climbed to the highest level since March 2008, pacing gains by liquor makers, after Shenyin & Wanguo Securities Co. said the company may raise product prices by 24 percent. Industrial & Commercial Bank of China Ltd. plunged by the 10 percent daily cap as it resumed trading after completing part of a rights offer.

“The market will stabilize at this level as the previous sell-off has digested much of the risks arising from policy tightening,” said Wang Zheng, chief investment officer at Jingxi Investment Management Co. in Shanghai. “ICBC’s mainly playing catch-up after the suspension.”

The Shanghai Composite Index rose 31.65, or 1.1 percent, to close at 2,859.94 at 3 p.m., the biggest gain since Nov. 5. The gauge had lost more than 10 percent as of yesterday since reaching an almost seven-month high on Nov. 8 on concern that accelerated monetary tightening will crimp economic growth. The CSI 300 Index advanced 2.3 percent to 3,177.04.

Inflows of money from the trade surplus, foreign direct investment, and investors betting on gains by the yuan threaten to propel consumer prices after unprecedented lending by banks flooded the economy with cash from late 2008. Consumer prices rose 4.4 percent in October from a year earlier.

Food Inflation

Premier Wen Jiabao’s cabinet last week announced it will sell grain, cooking-oil and sugar reserves, ordered an end to tolls on trucks carrying produce and threatened price controls to rein in a 10 percent inflation rate for food.

An index of materials producers traded on the CSI 300 gained 2.3 percent. The measure had fallen 8.6 percent as of yesterday since the central bank on Oct. 19 raised borrowing costs for the first time since 2007. Policy makers last week boosted the amount of money that lenders must set aside for the fifth time this year.

Jiangxi Copper, the country’s biggest producer of the metal, advanced 2.5 percent to 35.03 yuan after falling to its lowest level in almost two months yesterday. Zhuzhou Smelter Group Co., China’s biggest producer of refined zinc, rose 3.1 percent to 15.92 yuan. PetroChina, the nation’s largest oil producer, added 0.8 percent to 10.95 yuan, snapping a three-day losing streak.

Copper futures in London climbed as much as 1.8 percent today and zinc gained as much as 2.7 percent after a decline of 4.6 percent. Oil gained as much as 0.8 percent to $81.88 in New York. Commodities rebounded as concern eased over yesterday’s artillery-fire exchange between North and South Korea.

Liquor Makers

An index tracking consumer staples producers rallied 3.8 percent, a fifth day of gains, on speculation the companies will be able to pass on costs. Moutai, China’s biggest producer of baijiu liquor by market value, jumped 5.8 percent to 199.92 yuan, the highest close since March 2008.

Moutai may raise its liquor prices by between 20 percent and 24 percent in late December, analyst Tong Xun at Shenyin & Wanguo Securities wrote in a note today. The brokerage set a 12- month share price estimate of 240 yuan.

Wuliangye Yibin Co., the second largest, added 3.7 percent to 39.27 yuan. Luzhou Laojiao Co., a sprits producer in southwest province of Sichuan, rose 4.7 percent to 46.02 yuan.

China may set a 4 percent inflation target for next year during the government’s annual central economic work meeting to be held at the end of this year, the China Business News reported. The annual target for this year is 3 percent.

Economic Growth

The government’s measures to curb inflation won’t hurt the stock market or economic growth, Shi Jianxun, a professor from Tongji University, wrote in a commentary published on the front page of People’s Daily’s overseas edition today.

Industrial companies rallied after the China Securities Journal said the government will announce a plan to develop the nation’s construction machinery industry.

Guangxi Liugong Machinery Co. jumped the 10 percent daily limit to 35.50 yuan. Changsha Zoomlion Heavy Industry Science & Technology Development Co., the nation’s second-biggest maker of concrete-handling machinery, surged 10 percent to 14.26 yuan. XCMG Construction Machinery Co., the publicly traded unit of China’s biggest building equipment maker, climbed 10 percent to 53.86 yuan.

ICBC, the world’s largest bank by market value, slumped the maximum 10 percent to 4.42 yuan, the biggest drag on the Shanghai Composite. The benchmark gauge slumped 6.2 percent during the stock’s weeklong suspension. ICBC said it raised 33.67 billion yuan ($5.06 billion) in the Shanghai part of a rights offer that was 99.72 percent subscribed. The lender is also selling about 11 billion yuan of stock in Hong Kong.

Bank of Nanjing Co., which also resumed trading today after raising 4.86 billion yuan from a rights issue, dropped 5.8 percent from its last close on Nov. 15 to 10.46 yuan.

--Zhang Shidong. Editors: Richard Frost, Darren Boey

To contact Bloomberg News staff for this story: Zhang Shidong in Shanghai at +86-21-6104-3040 or szhang5@bloomberg.net

To contact the editor responsible for this story: Darren Boey at dboey@bloomberg.net

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