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China’s Benchmark Stock Index Climbs on Fiscal Outlook, U.S. Retail Sales

China’s benchmark stock index rose from a one-month low on speculation the government will take more fiscal measures to support economic growth, overshadowing concern that the government will keep property curbs next year.

Sinohydro Group Ltd. led a rally among water-related stocks after the China Securities Journal reported the central government plans to invest 80 billion yuan ($12.5 billion) annually for water-saving irrigation projects. Citic Securities Co. climbed for the first time in four days after the Shanghai Stock Exchange said it will widen the scope of securities available for margin trading and short selling. China Vanke Co. slid among developers after Vice Premier Li Keqiang said the government should continue with real-estate restrictions.

“Economic policies will be relaxed though they will probably be limited,” said Wu Kan, a fund manager at Dazhong Insurance Co., which oversees $285 million. “The global slowdown caused by Europe’s debt crisis and decelerating earnings in the fourth quarter will put pressure on the government to ease policies.”

The Shanghai Composite Index (SHCOMP) gained 2.81 points, or 0.1 percent, to 2,383.03 at the close. Almost the same number of stocks rose as those that fell. The CSI 300 Index (SHSZ300) added 0.1 percent to 2,573.32. The Bloomberg China-US 55 Index, the measure of the most-traded U.S.-listed Chinese companies, retreated 0.4 percent in New York on Nov. 25.

The Shanghai Composite slid 1.5 percent last week, a third week of declines, after data showed the country’s manufacturing may contract this month by the most since March 2009. The index is valued at 11.3 times estimated earnings, compared with a four-year average of 17.3 times, according to weekly data compiled by Bloomberg. The measure has fallen 15 percent this year after the central bank raised rates three times and lifted the reserve-requirement ratio to curb inflation.

Fiscal Support

Sinohydro, the nation’s biggest builder of dams, rose 1.6 percent to 4.60 yuan. China Gezhouba Group Co. added 1.9 percent to 8.65 yuan. Anhui Water Resources Development Co. (600502) climbed 3.4 percent to 14.29 yuan.

The central government plans to invest at least 80 billion yuan per year over five years to develop water-saving irrigation projects, the China Securities Journal reported, citing an unidentified person from the Ministry of Water Resources.

The nation will likely maintain “active” fiscal policies next year, focusing on “structural” tax deductions, the journal said in a separate report, citing unidentified analysts. China should pay more attention to solving contradictions between the economy and society through fiscal policy, the newspaper reported, citing Jia Kang, head of the Ministry of Finance’s research institute for fiscal science.

China Economy

China is unlikely to loosen its monetary policies as the economy is still growing at more than 9 percent while the inflation rate is at 5.5 percent, according to China International Capital Corp. The economy, which grew 10.4 percent last year, may expand at a 9.2 percent pace this year, the nation’s industry regulator said Nov. 24.

PetroChina Co., the nation’s biggest oil company, gained 0.7 percent to 9.72 yuan. Jiangxi Copper Co., China’s biggest producer of the metal, gained 0.7 percent to 25.44 yuan. China Shenhua Energy Co., the nation’s largest coal producer, jumped 1 percent to 25.81 yuan.

The International Monetary Fund is preparing a 600 billion euro ($794 billion) loan for Italy in case the country’s debt crisis worsens, La Stampa reported, without saying where it got the information. An IMF spokesperson said in an e-mailed statement today it’s not in talks with Italy for a loan program.

U.S. Retail Sales

U.S. retail sales increased 16 percent to $52.4 billion during the Thanksgiving weekend, according to the National Retail Federation, citing a survey conducted by BIGresearch. The average shopper spent $398.62, up from $365.34 a year earlier.

Europe and the U.S. make up about a total of 35 percent of China’s exports, according to Shenyin & Wanguo Securities Co.

Citic Securities, China’s biggest listed brokerage, rose 0.5 percent to 11.14 yuan. Haitong Securities Co. added 0.8 percent to 8.09 yuan. China Everbright Securities Co. (601788), a unit of the nation’s largest state-owned investment group, climbed 1.1 percent to 11.58 yuan.

China will broaden securities eligible for margin trading and short sales on Dec. 5 to include stocks in the Shanghai Stock Exchange 180 Index and four open-ended exchange-traded funds including the China 50 ETF, the Shanghai exchange said in a statement on Nov. 26 after the market closed.

Vanke, the nation’s biggest listed brokerage, fell 0.4 percent to 7.07 yuan. China Merchants Property Development Co. lost 0.3 percent to 16.38 yuan. Citichamp Dartong Co. slid 3.8 percent to 6.53 yuan.

Home Prices

Li said measures introduced to control the nation’s property market are at a “critical stage” and that the government should continue with the curbs, the official Xinhua News Agency reported. Li is in line to replace Wen as premier next year, according to Willy Wo-Lap Lam, an adjunct professor of Chinese history at the Chinese University of Hong Kong.

Li also called for increased efforts to construct and “fairly distribute” affordable housing to low-income families, according to the report. The vice premier made the remarks while visiting the city of Langfang in Hebei province on Nov. 25, during which he checked on the implementation of the government’s affordable housing policies, Xinhua reported.

House prices in China’s top tier cities are likely to fall by 10 percent to 30 percent next year, exceeding losses in other cities amid higher prices and lower affordability, Daiwa Capital Markets said. Declines in the lesser 3 and 4 tier cities may drop by 5 percent to 15 percent in 2012, Daiwa analysts led by Danny Bao wrote in a report dated Nov. 25.

To contact Bloomberg News staff for this story: Bloomberg News in Shanghai at szhang5@bloomberg.net

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

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