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China’s Stocks Advance, Capping Best Quarterly Gain in a Year

China’s stocks rose, capping the benchmark index’s biggest quarterly gain in a year, on better- than-estimated earnings from banks and speculation the government will help companies weather the slowing economy.

Anhui Conch Cement Co. (600585) jumped 1.7 percent, pacing an advance for cement producers, after the Shanghai Securities News said the government will control new investment in cement capacity. Industrial & Commercial Bank of China (601398) Ltd. and Bank of China Ltd. (3988) led a gauge of financial companies to the biggest gain among industry groups after the lenders profit growth in the fourth quarter. PetroChina Co., the biggest energy producer, slipped after net income missed analysts’ estimates.

The Shanghai Composite Index (SHCOMP) rose 10.63 points, or 0.5 percent, to 2,262.79 at the close, paring this week’s losses to 3.7 percent. It’s up 2.9 percent since Dec. 31, posting the biggest quarterly gain in a year. Still, the index has dropped 8 percent from this year’s high on March 2 on concern the world’s second-biggest economy is stalling as the government’s property curbs and tight monetary policies reduce profits.

“The market’s recent losses are quite big and we expect some bargain hunting at this level to support a rebound,” said Wei Wei, an analyst at West China Securities Co. in Shanghai. “We are still in a poor earnings season and the market may need to digest more bad earnings.”

The CSI 300 Index (SHSZ300) gained 0.5 percent to 2,454.58 today. The Bloomberg China-US 55 Index (CH55BN), the measure of the most-traded U.S.-listed Chinese companies, retreated 1.4 percent in New York yesterday. China’s markets will be closed from April 2 to April 4 for public holidays.

Controlling Capacity

Anhui Conch, China’s biggest cement maker, gained 1.7 percent to 15.78 yuan. Gansu Qilianshan Cement Group Co. added 0.4 percent to 9.35 yuan.

China will increase financial support for cement industry consolidation, the Shanghai Securities News reported today, citing Liu Ming, an official at the National Development and Reform Commission. The nation currently has 2.9 billion tons of cement capacity and 2.1 billion tons of production, it said.

The nation’s state broadcaster, China Central Television, reported last week that authorities may increase punishments for over production of rare earths. China will also push the formation of large rare-earth enterprises and also announce requirements for entering the industry, CCTV reported March 20, citing the Ministry of Industry and Information Technology.

A gauge of financial stocks including banks and developers in the CSI 300 added 1.5 percent, the most among 10 industry groups.

Bank Earnings

ICBC, the nation’s biggest lender, rose 1.2 percent to 4.33 yuan after reporting a 17 percent increase in net income to 44.4 billion yuan ($7 billion). That compared with the 43.4 billion- yuan average estimate of 22 analysts in a Bloomberg survey. Bank of China, the fourth biggest, gained 2.1 percent to 2.98 yuan after it posted an 11 percent increase to 27.9 billion yuan.

Chinese listed companies are required to release their annual results from Jan. 1 to April 30. Five-hundred and fifty- six companies in the Shanghai Composite have released annual earnings, posting average profit growth of 14 percent, which trails analyst estimates by 2 percent, according to data compiled by Bloomberg. That compared with an increase of 38 percent in the previous year.

Poly Real Estate Group Co. led gains for developers for a second day, rising 4.5 percent to 11.29 yuan. Gemdale Corp. (600383) climbed 3.5 percent to 5.99 yuan.

Rate Outlook

Chinese property developers’ “comfort” under current tightening and confidence in a stable outlook suggests the toughest time for the industry is over, Citigroup Inc’s Hong Kong-based analysts led by Oscar Choi said in a report dated yesterday. The central government may also give local governments flexibility to fine-tune policy, they said.

Economists are split on whether China will cut benchmark interest rates this year, ahead of a manufacturing report that will give the latest reading on the slowdown in the world’s second-biggest economy.

Nine of 20 analysts in a Bloomberg News survey that closed today say one-year borrowing costs will fall, with six seeing a decline in the deposit rate. Analysts unanimously predict lower bank reserve requirements, with a median estimate of three 50- basis point reductions.

China’s statistics bureau and logistics federation is due to release a manufacturing index for March on April 1. The gauge may drop to 50.6 from 51 last month, according to the median estimate of 18 analysts surveyed by Bloomberg. The number of 50 is the dividing line for expansion and contraction.

Alcohol Purchase Ban

PetroChina lost 0.2 percent to 9.69 yuan after net income dropped 5 percent to 133 billion yuan last year, compared with a mean estimate of 138 billion yuan in a survey of 20 analysts compiled by Bloomberg.

A measure of consumer staples stocks retreated 1.8 percent today, adding to a 6.6 percent slump this week, after Premier Wen Jiabao said on March 27 governments will be banned from using public funds to buy “high-end” alcohol.

Kweichow Moutai, China’s biggest producer of baijiu liquor by market value, tumbled 2.1 percent to 196.96, sliding 7.1 percent this week. Wuliangye Yibin Co., the second largest, lost 2.9 percent to 32.84 yuan, adding to an 8.1 percent weekly drop.

The Shanghai Composite fell 6.8 percent this month after Premier Wen Jiabao announced March 5 a lower economic growth target for China and Societe Generale SA said in a March 27 report that corporate profits won’t grow at all this year.

The 14-day relative strength measure for the gauge, measuring how rapidly prices have advanced or dropped during a specified time period, was at 29.2 yesterday. Readings below 30 indicate it may be poised to rise. Thirty-day volatility on the Shanghai Composite was at 17.5 today, its highest since March 2. About 7.4 billion shares changed hands in the gauge yesterday, or 16 percent lower than the daily average this year, according to data compiled by Bloomberg.

“The market is reacting to slower earnings growth or declines at some companies, which was caused by the government’s monetary tightening last year,” said Jeff Papp, a senior analyst in Lisle, Illinois at Oberweis Asset Management Inc., which manages $700 million of assets including Chinese stocks.

--Zhang Shidong. Editors: Allen Wan, Chan Tien Hin

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

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

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