June 24 (Bloomberg) -- China’s stocks rallied the most in four months on speculation the central bank will refrain from raising interest rates after Premier Wen Jiabao said efforts to stem inflation have worked.
Industrial and Commercial Bank of China Ltd. led a gauge of financial companies up by 2.9 percent as money-market rates dropped for the first time in eight days. Citic Securities Co. climbed 8.6 percent. Air China Ltd. advanced the most in eight months after oil slumped. SAIC Motor Corp. jumped to a two-month high as the National Business Daily said government agencies are seeking to remove limits on vehicle purchases.
“The premier’s remarks are a catalyst for the market rally, giving investors confidence that inflation may ease in the near future,” said Li Jun, a strategist at Central China Securities Co. “It turns sentiment from pessimistic into positive.”
The Shanghai Composite Index, which tracks the bigger of China’s stock exchanges, added 58 points, or 2.2 percent, to 2,746.21 at the 3 p.m. close, the biggest gain since Feb. 14. It advanced 3.9 percent this week, the most since the five days ended Nov. 5. The CSI 300 Index rose 2.4 percent to 3,027.47.
The Shanghai gauge has slumped 10 percent from this year’s high on April 18 on concern government measures to cool inflation will slow economic growth. The central bank has raised reserve requirements 12 times and interest rates four times since the start of last year. The stock index has lost 2.2 percent this year, dragging down average estimated price earnings to 12.8 times from 15.9 times at the end of 2010.
“There is concern as to whether China can rein in inflation and sustain its rapid development -- my answer is an emphatic yes,” Wen wrote in an opinion piece in the Financial Times newspaper. “China has made capping price rises the priority of macroeconomic regulation and introduced a host of targeted policies. These have worked. The overall price level is within a controllable range and is expected to drop steadily.”
The government is curbing credit growth to tame the surge in consumer prices that pushed inflation to a 5.5 percent last month, the highest level since July 2008.
China’s money-market rate declined today, snapping a seven-day advance. The seven-day repo rate fell 63 basis points to 8.41 percent as of 4 p.m., according to a weighted average rate compiled by the National Interbank Funding Center. It touched 9.20 percent earlier, the highest level since October 2007.
A gauge of financial companies including banks and brokers rose the second most among the 10 industry groups in the CSI 300. ICBC, the world’s largest bank by market value, climbed 2.3 percent to 4.48 yuan, the most since May 30. China Construction Bank Corp., the second largest, added 2.3 percent to 4.96 yuan.
Citic Securities, China’s biggest brokerage, jumped 8.6 percent to 13.28 yuan, the biggest gain since Feb. 14. Haitong Securities Co. advanced 6 percent to 8.96 yuan. Trading volumes on the Shanghai index rose to 7.3 billion yesterday, up 26 percent from the previous session.
Air China, the biggest international carrier, climbed 6.4 percent to 9.88 yuan, the most since Oct. 25. China Southern Airlines Co. advanced 7.8 percent to 7.90 yuan. China Eastern Airlines Corp. jumped 4.6 percent to 5.21 yuan.
The Standard & Poor’s GSCI index of 24 commodities dropped 3.6 percent yesterday, the most since May 11. Crude oil for August delivery fell 4.6 percent to $91.02 in New York. Futures have risen 19 percent in the past year.
Commodities tumbled yesterday as the International Energy Agency announced plans to release emergency crude-oil supplies, and U.S. jobless claims rose more than forecast, signaling a fragile U.S. economy.
China’s stocks have gained this week on increased government support for alternative energy production and affordable housing.
Local government financing vehicles will be allowed to sell bonds to fund the construction of low-cost homes, according to a notice on the website of the National Development and Reform Commission’s Anhui province branch on June 16. The nation will invest 400 billion yuan ($62 billion) in hydroelectric dams, the China Daily reported yesterday, citing Han Wenke, director of the NDRC’s Energy Research Center.
China Vanke Co., the biggest developer, increased 1.3 percent to 8.38 yuan, adding to a 4.1 percent gain for the week. Gemdale Corp. rose 1.5 percent to 6.28 yuan today.
Some real estate developers in China have applied to the NDRC to sell bonds, the 21st Century Business Herald reported today, without saying where it got the information.
SAIC Motor rallied 2.9 percent to 18.97 yuan, the highest since April 14. Beiqi Foton Motor Co. advanced 3.9 percent to 8.57 yuan.
The NDRC and other government agencies are seeking to change or remove the country’s purchase limits on vehicles in a report to the State Council, National Business Daily reported, citing an unidentified official at the China Association of Automobile Manufacturers. China Association of Automobile Manufacturers deputy head Dong Yang denied the newspaper report today, saying “there’s no such thing” in a phone interview.
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