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China’s Stocks Decline as Inflation Signals More Interest-Rate Increases

China’s stocks fell for the first time in three days after inflation exceeded government targets last month, signaling higher interest rates that may slow the world’s second-biggest economy.

Jiangxi Copper Co. led declines for copper producers on speculation further monetary tightening will curb demand for industrial metals. SAIC Motor Corp., the nation’s biggest automaker, dropped more than 2 percent after China’s car sales decelerated in April. Huaxia Bank Co., partly owned by Deutsche Bank AG, and China Merchants Bank Co. slid at least 0.9 percent after the nation’s consumer prices rose 5.3 percent.

“The higher-than-expected inflation fueled investors’ concern over inflation and more tightening measures,” said Li Jun, a strategist at Central China Securities Co. in Shanghai “The economy has shown signs of a slowdown and inflationary pressure isn’t easing at all. That makes it a bad scenario for the market.”

The Shanghai Composite Index slipped 7.2 points, or 0.3 percent, to 2,883.42 at the 3 p.m. close. The CSI 300 Index declined 0.3 percent to 3,145.08. The Shanghai Composite has declined 5.7 percent from a five-month high on April 18 amid concern the government will add to 10 increases in lenders’ reserve-ratio requirements and four increments in interest rates since early last year to cool inflation. The losses pared the gauge’s advance this year to 2.7 percent.

China’s April consumer prices exceeded the government’s full-year target of 4 percent for a fourth straight month. The gain was more than the 5.2 percent median forecast in a Bloomberg News survey of 30 economists and compared with a 5.4 percent increase in March.

‘Pressing Problem’

Huaxia Bank dropped 1.1 percent to 12.18 yuan. China Merchants Bank Co., the nation’s sixth-largest lender, lost 0.9 percent to 14.03 yuan. China’s new local-currency lending was 739.6 billion yuan last month, a report from the central bank showed today. The number posted on the central bank’s website compared with the median 700 billion yuan forecast in a Bloomberg News survey of 20 economists.

The statistics bureau said today in Beijing that producer prices increased 6.8 percent, retail sales rose 17.1 percent in April and industrial production gained 13.4 percent. Fixed-asset investment grew 25.4 percent in the first four months of 2011 from a year earlier, today’s report showed.

The government is seeking to control consumer prices that rose to the highest in three years in March without stifling growth. Inflation is “the most pressing problem” facing China, Vice Premier Wang Qishan said at talks in Washington this week where the U.S. pressed for faster gains in the yuan. Economists predict one more interest-rate increase this year, according to the median forecast from a Bloomberg survey.

Rate Outlook

China may raise rates “soon’” to control inflation that will range between 5 percent and 6 percent until July or August, Stephen Green, head of Greater China research at Standard Chartered Plc, said in an interview with Bloomberg Television.

Jiangxi Copper, the biggest copper producer, slumped 1.3 percent to 33.79 yuan. Yunnan Copper Industry Co. (000878) declined 1.3 percent to 22.92 yuan.

The nation’s passenger-car sales slowed in April from the previous month as the government raised fuel prices and Japan’s record earthquake slowed deliveries. Deliveries of cars including multipurpose and sport-utility vehicles to dealerships rose 2.8 percent from a year earlier to 1.14 million units, the China Association of Automobile Manufacturers said in a statement yesterday. Sales climbed 6.5 percent in March.

SAIC Motor fell 1.8 percent to 16.75 yuan. Baoshan Iron & Steel Co., the supplier of half of China’s market for automotive steel, lost 0.4 percent to 6.88 yuan.

A gauge of consumer staples in the CSI 300 rose 0.3 percent. Kweichow Moutai surged 0.9 percent to 185.27 yuan. Rival Wuliangye Yibin Co. added 1 percent to 33.20 yuan.

Yuan Gains

Today’s inflation figures may buttress the case made by U.S. Treasury Secretary Timothy F. Geithner in annual bilateral talks in Washington this week that China needs a stronger yuan to contain prices and spur domestic demand.

Twelve-month non-deliverable forwards climbed 0.06 percent to 6.3438 per dollar as of 10:17 a.m. in Hong Kong, according to data compiled by Bloomberg. The contracts reflect bets the yuan will strengthen 2.3 percent from the onshore spot rate.

China Southern Airlines Co. the biggest domestic carrier, gained 1.8 percent to 8.69 yuan. Air China Ltd. (601111) added 0.2 percent to 10.88 yuan.

A stronger yuan pares the value of dollar-denominated debt accumulated by buying planes. Every 1 percent yuan appreciation will add 600 million yuan ($92 million) to Air China’s earnings, Rao Xinyu, head of investor relations, said last month, while China Southern said on March 29 every 1 percent gain in the yuan adds 400 million yuan to earnings.

--Irene Shen, Zhang Shidong. Editor: Allen Wan

To contact Bloomberg News staff for this story: Irene Shen in Shanghai at +86-21-6104-3049 or Ishen4@bloomberg.net

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

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