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China’s Stocks Advance on Speculation Inflation Is Peaking

July 11 (Bloomberg) -- China’s stocks rose, spurring the biggest gain for the benchmark index in a week, on speculation inflation will decelerate the rest of the year and the nation’s economic growth may sustain earnings.

SAIC Motor Corp. climbed 1.9 percent after the nation’s car sales rebounded in June after dropping the previous month. Anhui Water Resources Development Co. jumped the most this month after Xinhua News Agency reported the government will speed up investment in water projects. China Shenhua Energy Co. led declines among coal companies as raw-material prices fell. China’s pork prices may retreat beginning in July and August, Xinhua reported, after a government report showed consumer prices rose at the fastest pace in three years last month.

“The June inflation number had already been widely expected by the market and its impact will be minor,” said Ling Peng, chief strategist at Shenyin & Wanguo Securities Co. in Shanghai. “Inflation may have already peaked.”

The Shanghai Composite, which tracks the bigger of China’s stock exchanges, rose 4.92 point, or 0.2 percent, to 2,802.69 at the 3 p.m. close. The CSI 300 Index added 0.1 percent to 3,113.21.

The Shanghai gauge has fallen 0.2 percent this year. The index has pared a loss of as much as 6.7 percent on speculation fiscal policies such as spending in affordable housing will support the economy and after Premier Wen Jiabao said on June 24 efforts to stem inflation have worked. The central bank raised interest rates last week for a fifth time since the start of 2010.

Inflation Peak

Consumer prices rose 6.4 percent in June, mainly driven by a 14 percent gain in food costs, the statistics bureau said on its website over the week-end. The pace exceeded the 6.2 percent median estimate in a Bloomberg News survey of 19 economists. Producer prices gained 7.1 percent, the bureau said. That compared with the median estimate of 6.9 percent.

June inflation may be the peak this inflationary cycle as price increases are slowing on a month-on-month basis, according to Citic Securities Co. Consumer prices may rise about 6 percent this month and the central bank isn’t likely to raise interest rates the rest of the year, analysts led by Zhu Jianfang wrote in a report today.

SAIC, China’s largest carmaker, gained 1.9 percent to 18.65 yuan. FAW Car Co., which makes passenger cars in China with Volkswagen AG, advanced 2.7 percent to 15.14 yuan. Chongqing Changan Automobile Co., the Chinese partner of Ford Motor Co. and Mazda Motor Corp., added 1 percent to 5.32 yuan.

Economic Growth

Deliveries of cars including multipurpose and sport-utility vehicles to dealerships rose 6.2 percent to 1.1 million units last month, the China Association of Automobile Manufacturers said in a statement July 8. The increase follows a 0.1 percent decline in May, the first drop since January 2009.

China’s economy probably grew 9.3 percent in the second quarter, according to the median estimate in a Bloomberg survey. It expanded 9.7 percent in the first quarter. The figure is due July 13.

Exports climbed 17.9 percent in June, the least since December, the customs bureau said on its website yesterday. Imports jumped 19.3 percent, the weakest expansion since gains resumed in November 2009. The trade surplus widened to $22.3 billion in June, the highest level in seven months.

“Policy tightening may ease with inflation peaking soon, and economic growth may pick up again,” said Shen Yang, a Shanghai-based fund manager at Lombarda China Fund Management Co., a venture with Italy’s fourth-biggest bank. “That’s positive for the stock market.”

Pork Prices

China’s pork prices may fall beginning in July and August as more maturing pigs boost supply, Xinhua reported, citing Wang Zhicai, director of animal husbandry at the Ministry of Agriculture. The country’s total hog inventory has risen for a fourth month and farmers have actively increased production, Xinhua said, citing Wang.

Anhui Water Resources surged 3.8 percent to 15.65 yuan. China Gezhouba Group Co. added 2 percent to 12 yuan. Gansu Dayu Water-saving Group Co. jumped 8.2 percent to 12.56 yuan.

China will accelerate investment in water projects, Xinhua reported over the week-end, citing a politburo meeting chaired by President Hu Jintao. China will make agricultural irrigation projects a priority and boost construction of dams and reservoirs, Hu said in the Xinhua statement posted on the central government’s website.

Air China Ltd., the largest international carrier, rose 1.7 percent to 10.37 yuan. China Southern Airlines Co., the nation’s biggest carrier by fleet size, gained 2.5 percent to 8.48 yuan.

Coal Stocks

Investment in the aviation industry may exceed 1.5 trillion yuan ($232 billion) over the next five years, according to Shanghai Securities News. China should form two to three large and internationally competitive airlines through consolidation, the newspaper reported, citing Li Jiaxiang, director of the Civil Aviation Administration of China.

Shenhua dropped 1.7 percent to 30.89 yuan. China Coal Energy Co., the nation’s second-largest coal producer, slipped 1 percent to 10.09 yuan. Datong Coal Industry Co., the third biggest, retreated 1.8 percent to 17.56 yuan.

Crude oil for August delivery declined 2.5 percent to settle at $96.20 a barrel in New York on July 8, the biggest drop since June 23.

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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