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China Stocks Rise Most in Week on Banks, Steelmakers Outlook

China’s stocks rose, driving the benchmark index’s biggest gain in a week, as steelmakers rallied on a plan to boost spending on affordable housing and banks rallied after Citigroup Inc. forecast higher earnings.

Hebei Iron & Steel Co. jumped more than 4 percent and Anhui Conch Cement Co., the largest cement company, surged the most in two weeks as Premier Wen Jiabao said the government will spend an extra 18 billion yuan ($2.8 billion) on low-cost housing. Industrial and Commercial Bank of China Ltd. paced gains for lenders after Citigroup said banks may report an average 29 percent increase in first-quarter profit.

The Shanghai Composite Index added 19.6 points, or 0.7 percent, to 3,026.67 at the 3 p.m. close, the most since April 13. The CSI 300 Index (SHSZ300) climbed 0.7 percent to 3,317.37. U.S. stocks rallied yesterday, sending the Dow Jones Industrial Average to its highest level since June 2008, as increased profit for U.S. companies including Apple Inc. signaled the global economic recovery is accelerating.

“The overnight U.S. market rally created buying sentiment around Asia, boosting investors’ confidence in the global economy,” said Tu Jun, a strategist at Shanghai Securities Co. “Optimism over companies first-quarter earnings is also boosting prices.”

The Shanghai Composite has surged 7.8 percent this year, the best performer among the biggest Asian markets, as optimism about growth in the world’s second-largest economy and corporate earnings outweighed measures to cool inflation. The central bank has announced 10 reserve-requirement ratio increases since the start of 2010 and raised interest rates four times.

Banks Gain

ICBC, the world’s largest lender by market value, added 0.4 percent to 4.58 yuan. Bank of Communications Co. advanced 0.5 percent to 5.99 yuan.

Chinese banks may report an increase in first-quarter earnings, driven by an expansion in net interest margins and “strong” fee income growth, according to Citigroup.

The brokerage sees “upside” to 2011 earnings estimates, “inexpensive” valuations and a “benign” economic outlook, analysts led by Simon Ho wrote in a report. Their top picks are Agricultural Bank of China Ltd., ICBC and China Merchants Bank Co., the report said. The banks are set to release earnings from April 27 to April 29, the analysts said.

Steelmakers and cement producers rallied on the prospect the China housing plan will spur demand for construction materials. The extra money on social housing will add to 103 billion yuan of funding earlier proposed by the central government. The government will need at least 1.3 trillion yuan to build 10 million units of affordable housing this year, excluding land costs, Housing and Urban-Rural Development Vice Minister Qi Ji said last month.

Cement Outlook

Shanghai Securities Co.’s steel analyst Zhu Limin, Capital Securities Corp.’s Li Xiaolu and Dazhong Insurance Co.’s fund manager Wu Kan said domestic demand is picking up, exports are rising and steel stocks have been cheap for an extended period. The affordable housing plan helps offset negative effects from the government’s plan to rein in housing speculation, Wu said.

Hebei Iron, the listed unit of China’s biggest steel maker, added 4.4 percent to 5.20 yuan. Guangzhou Iron and Steel Co. jumped 10 percent to 8.53 yuan, the most since 2008.

Anhui Conch climbed 3.2 percent to 40 yuan. Goldman Sachs Group Inc. forecast the company may triple earnings in the first half and boosted its earnings forecasts by at least 60 percent for fiscal 2011 through 2013. Xinjiang Tianshan Cement Co. rose 8.3 percent to 42.20 yuan, the most since Aug. 30.

China’s government risks a “hard landing” for the economy by failing to tighten monetary policy quickly enough to cool inflation, independent economist Andy Xie said in an interview with Bloomberg Television today.

The central bank may raise borrowing costs three or four times during the rest of the year, the former Morgan Stanley economist said. China’s stocks may fluctuate amid the tightening, he said.

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

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