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China’s Stock Index Gains on Rating Upgrade, Oil Speculation

China’s benchmark stock index rose as banks and oil refiners advanced after Moody’s Investors Service boosted the nation’s debt rating and speculation mounted the government will raise fuel prices. Consumer-related companies erased gains on concern costs will rise.

Agricultural Bank of China Ltd. climbed 1.1 percent after Moody’s said it boosted China’s rating one step to Aa3, the fourth-highest grade. PetroChina Co. and China Petroleum & Chemical Corp. jumped more than 5 percent, contributing most to gains, as investors bet higher energy prices would boost margins. Liquor maker Kweichow Moutai Co. slid 2.1 percent.

“There’s still room for stocks to go up, because we have abundant liquidity both home and abroad,” said Zhang Ling, a fund manager at Shanghai River Fund Management Co.

The Shanghai Composite Index, which tracks the bigger of China’s stock exchanges, climbed 32.39, or 1 percent, to 3,147.74 at the 3 p.m. close, even as three stocks fell for each that rose. The CSI 300 Index added 0.3 percent to 3,509.98, led by energy stocks.

The Shanghai Composite has climbed 33 percent from its July 5 low as fund flows to emerging markets surged. Stocks in the gauge are valued at 17.8 times estimated earnings, less than half the multiple of 43 when the market peaked in 2007.

The index gained as much as 2.3 percent today after Moody’s raised China’s foreign and local debt rating to Aa3, the fourth-highest ranking, citing financial strength and the ability to contain losses from a credit boom. The ratings company maintained a positive outlook.

Monetary Policy

The People’s Bank of China said in a statement yesterday banks’ reserve requirements will rise 50 basis points from Nov. 16, the first nationwide increase since May. China ordered some lenders, including Bank of Communications Co., to increase their reserve ratios by an additional 50 basis points from Nov. 15, a person with direct knowledge of the matter said yesterday.

The central bank ordered lenders to set aside more reserves after October’s larger-than-forecast $27.1 billion trade surplus threatened to add to the risk of asset bubbles. Inflation accelerated to 4.4 percent in October, the fastest pace in two years, and more than the 4 percent median forecast in a Bloomberg News survey of 28 economists, according to the statistics bureau today. In September, prices rose 3.6 percent.

Banks Gain

Agricultural Bank climbed 1.1 percent to 2.80 yuan. Bank of Communications Co. gained 0.8 percent to 6.18 yuan.

The nation’s efforts to tackle asset bubbles and avert the spread of bad loans has meant the “likely containment and effective management” of losses from record lending last year to counter the financial crisis, Moody’s said. That combined with China’s “resilient” economic growth were reasons for the upgrade, the ratings company said.

PetroChina gained 7.7 percent to 12.74 yuan, the most since September 2008. China Petroleum & Chemical Corp., the nation’s largest oil refiner, added 5.2 percent to 9.49 yuan, the biggest gain in 11 months. The two stocks’ advance together accounted for 91 percent of the gain on the Shanghai Composite.

“Oil prices are the primary reason supporting the shares today,” Yin Xiaodong, an analyst with Beijing-based Citic Securities Co., said by telephone today. “Some investors are speculating that domestic retail fuel prices will be raised if crude continues to rise.”

China last increased fuel prices by 3 percent on Oct. 26 under a mechanism that allows the government to revise gasoline and diesel prices when crude costs change more than 4 percent over 22 working days. Crude futures in New York have risen 7.2 percent since last month’s adjustment.

Crude in New York rose as much as 0.8 percent to $88.55 a barrel in electronic trading on the New York Mercantile Exchange the highest since Oct. 9, 2008. Futures were at $88.41 a barrel at 4:11 p.m. Singapore time.

Oil Processing

China’s crude oil processing volume rose to a record last month after refiners increased production to ease a domestic fuel shortage, the China Mainland Marketing Research Co., which compiles data for the National Bureau of Statistics, said today.

“The diesel shortage and stronger processing data add to the positive sentiment for Sinopec and PetroChina,” Yin said.

Kweichow Moutai lost 2.1 percent to 175.92 yuan. Heilongjiang Agriculture Co. declined 1.9 percent, erasing an earlier gain of 1.2 percent.

Higher gasoline and diesel prices will add to costs for manufacturers and farmers and increase inflationary risks.

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