China Stocks Rise on Domestic Outlook, Rally 11% From 2010 Low

China’s stocks rose, extending gains for the benchmark index to 11 percent from this year’s low, as a jump in industrial profits and the prospects for increased spending and tourism boosted the domestic economic outlook.

Anhui Conch Cement Co. led gains for cement makers after the Economic Information Daily reported China will announce a development for the industry. China Eastern Airlines Corp., the second-largest carrier, climbed to the highest in more than two months after Morgan Stanley raised its rating on the shares. Industrial companies jumped after reporting higher first-half profit, paced by Baoshan Iron & Steel Co.’s 2.9 percent advance.

“A double-dip for China’s economy seems unlikely,” said Zhang Ling, a fund manager at Shanghai River Fund Management Co. “The rebound will carry on for a while as stocks are cheap and earnings of some companies have beaten expectations.”

The Shanghai Composite Index, which tracks the bigger of China’s stock exchanges, surged 58.30, or 2.3 percent, to 2,633.66 at the 3 p.m. close, the highest since May 28. The CSI 300 Index gained 2.4 percent to 2,863.72.

The Shanghai index has rebounded from this year’s low set on July 5 on expectations the government will relax property curbs and allow more bank lending to counter a slowdown in economic growth. Still, the gauge is down 21 percent this year on speculation measures to control real-estate speculation and rising consumer prices will damp earnings.

The government has been seeking to increase domestic consumption to offset a decline in exports as the global recovery slows. China will maintain a moderately loose monetary policy to year-end, Zhang Tao, head of the central bank’s survey and statistics department, wrote in the Economic Daily newspaper.

Policy Stability

The nation’s economic fundamentals remain “good,” the People’s Bank of China said on its website yesterday. China’s decreasing dependence on exports also means the European debt crisis is unlikely to have a large impact, the central bank said in its report for the second quarter. The central bank is cautiously optimistic about the Chinese economy, it said.

President Hu Jintao and Premier Wen Jiabao pledged last week to maintain policy stability in the second half after measures to rein in property prices, inflation and bank lending eased second-quarter growth to 10.3 percent from 11.9 percent in the first.

UBS AG economist Tao Wang said in a report yesterday the speech signaled a “subtle shift” in government policies and that no additional tightening measures will be introduced. The central bank has raised banks’ reserve requirements three times this year.

China aims to eliminate inefficient cement capacity and close polluting factories, according to the Economic Information Daily. Mergers and consolidations among cement makers are set to accelerate, it reported.

Airlines Rally

Anhui Conch, China’s biggest cement maker, surged the 10 percent daily limit to 19.58 yuan. Huaxin Cement Co., the Chinese affiliate of Holcim Ltd., gained the maximum 10 percent to 18.45 yuan. Tangshan Jidong Cement Co. rose 4.6 percent to 18.36 yuan.

China Eastern led an advance for airlines, adding 5.6 percent to 8.14 yuan, the highest close since May 6. The stock had its rating raised to “equal-weight” from “underweight” by Morgan Stanley analysts led by Edward Xu, who said the company’s near-term earnings momentum is “extremely strong,” helped by a boost from the World Expo in Shanghai. The event has attracted record crowds in the commercial hub.

Air China Ltd., the nation’s largest international carrier, rose 2.2 percent to 12.57 yuan. China Southern Airlines Co., the country’s biggest carrier by fleet size, climbed 4.1 percent to 7.37 yuan.

China’s shares are “due for a catch up” in the second half of this year as the nation delays further measures to curb property prices, said JPMorgan Asset Management’s Emerson Yip.

Yip, a Hong Kong-based fund manager for JPMorgan Asset’s Greater China team, said he’s considering buying more so-called A shares as evidence mounts that the People’s Bank of China will hold off from raising interest rates.

Earnings Outlook

Profits of Chinese industrial companies in 24 regions jumped 72 percent to 1.61 trillion yuan ($237.5 billion) in the first half of 2010 from a year earlier, the statistics bureau said today in a statement on its website.

Baoshan Steel, the listed unit of China’s second-biggest steelmaker, added 2.9 percent to 6.41 yuan. China Erzhong Group Deyang Heavy Industries Co., an equipment supplier to power producers, gained 2.7 percent to 10.27 yuan. China CSSC Holdings Ltd., a unit of the nation’s biggest shipbuilder, climbed 2.1 percent to 59.36 yuan.

The following companies were among the most active in China’s markets. Stock symbols are in brackets after companies’ names.

Chongqing Fuling Electric Power Industrial Co. (600452 CH) rose 6.9 percent to 13.10 yuan, the biggest gain in two months, after the company said first-half profit surged 48 percent from a year earlier.

Guangzhou Iron and Steel Co. (600894 CH) rose 2.4 percent to 6.33 yuan. The company said it posted net income of 46.4 million yuan for the first half, compared with a net loss of 28.3 million yuan a year earlier.

Xishui Strong Year Co. (600291 CH) jumped by the 10 percent daily limit to 11.08 yuan. The company’s board approved to sell part of the stakes in two cement units for combined 356.6 million yuan, Xishui Strong said in a statement late yesterday.

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