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China’s Stocks Rebound on Policy Speculation, Fiscal Support

Chinese stocks rose to a six-week high on speculation the central bank may ease monetary policy to bolster the economy as Europe’s debt crisis and slumping manufacturing in China and the U.S. threaten global growth.

China Minsheng Banking Corp. and Poly Real Estate Group Co. led gains for financial companies as money rates declined on prospects the central bank will ease a cash shortage. China Railway Group Ltd. jumped the most in nine months after the Xinhua News Agency said the railway ministry will get financial support to make payments. China National Software & Service Co. surged by the maximum 10 percent limit after Shanghai Securities News reported China will cut taxes on software products.

The Shanghai Composite Index, which tracks the bigger of China’s stock exchanges, advanced 34.09 points, or 1.4 percent, to 2,504.11 at the close, the highest since Sept. 21 and erasing a loss of as much as 1.5 percent. The CSI 300 Index climbed 1.7 percent to 2,742.36. Stocks earlier fell on concern a Greek referendum will threaten Europe’s bailout.

“With inflation showing signs of easing, there will be more policy loosening and investors are boosting their stock positions to reflect that,” said Dai Ming, fund manager at Shanghai Kingsun Investment Management & Consulting Co. “We’ll probably see some relaxation on credit growth soon.”

The Shanghai Composite has rebounded 6.5 percent from this year’s low on Oct. 21 as Premier Wen Jiabao said on Oct. 25 the government will fine-tune economic policies as needed. The government said this week it will lower the threshold for payment on value-added and business taxes for small companies. It has also announced measures to help small businesses through easier access to bank loans.

Inflation Outlook

China’s inflation may ease to 5.3 percent or 5.4 percent in October, said Zhu Jianfang, a Beijing-based economist at Citic Securities Co. He’s the most accurate forecaster of the number in Bloomberg News surveys over the past two years. The figure is due next week. Consumer prices rose 6.1 percent in September.

Minsheng Banking, the nation’s first privately owned bank, gained 2.6 percent to 6.27 yuan, leading advances for lenders. China Merchants Bank Co. added 1.9 percent to 12.38 yuan. Poly Real Estate, China’s second-largest developer by market value, rose 2 percent to 10.15 yuan. China Vanke Co., the biggest, climbed 1.8 percent to 7.90 yuan.

The seven-day repurchase rate, a gauge of interbank funding availability, dropped 69 basis points to 3.71 percent as of 3:10 p.m., the biggest drop since Oct. 12, according to a weighted average compiled by the National Interbank Funding Center. It has fallen 209 basis points from a three-month high of 5.8 percent on Oct. 31. One basis point is 0.01 percentage point.

“The central bank is trying to prevent a cash shortage as data points to a slowdown,” said Wang Huane, a senior bond trader at Qilu Bank Co. The People’s Bank of China may inject capital this week to support the economy, Wang said.

Credit Outlook

The government may keep “relatively easing” credit policy through the fourth quarter, the China Securities Journal reported today, citing unidentified banking sources. The four biggest banks extended 60 billion yuan ($9.45 billion) of loans between Oct. 21 and Oct. 27, compared with 80 billion yuan during the first 20 days of the month, according to the report.

The Shanghai index has fallen 11 percent this year after the central bank raised interest rates three times and lifted the reserve-requirement ratio to curb inflation that’s near a three-year high. It’s valued at 11.7 times estimated earnings, compared with a record low of 10.8 times on Oct. 21, according to weekly data compiled by Bloomberg.

Economic Slowdown

China’s purchasing managers’ index dropped to 50.4 in October, the lowest reading since February 2009, according to a report yesterday from the logistics federation and the statistics bureau. That compared with the median 51.8 estimate in a Bloomberg News survey of 16 economists and 51.2 in September. Gauges of new export orders, new orders and output all dropped last month.

Greek Prime Minister George Papandreou told his ministers in Athens that plans for a referendum on accepting the bailout terms would also ask voters to confirm if Greece should remain a member of the European Union and the euro area.

The U.S. Institute for Supply Management’s factory index dropped to 50.8 last month from 51.6 in September. A reading of 52 was the median forecast in a Bloomberg News survey of economists. Federal Reserve officials are probably engineering a third round of large-scale asset purchases, while they are unlikely to announce a decision today, according to a Bloomberg News survey of 42 economists.

“Greece’s referendum has put Europe’s bailout plan in jeopardy and the sovereign debt problem will continue to haunt the global markets,” said Wei Wei, an analyst at West China Securities Co. in Shanghai. Europe and the U.S. are China’s two biggest export markets, making up a combined 40 percent of the nation’s overseas shipments.

Rail Stocks

China Railway Group, the nation’s biggest construction company by total assets, rose 5.1 percent to 3.27 yuan, its biggest gain since Jan. 21. China Railway Construction Corp., builder of more than half the nation’s rail links since 1949, gained 6 percent to 4.94 yuan.

The railway ministry will get more than 200 billion yuan financial support to ensure payments on dues and improve liquidity, the Xinhua News Agency reported, citing unidentified people at the ministry.

A measure of 14 technology stocks jumped 4.3 percent today, the most among the CSI 300’s 10 industry groups. China National Software rose the maximum 10 percent to 18.69 yuan. Shanghai Baosight Software Co. surged 10 percent to 17.33 yuan. Neusoft Corp. climbed 8.5 percent to 10.04 yuan.

China will cut taxes on software products to support the development of the software industry, Shanghai Securities News reported, without citing anyone. Shanghai may cut the business tax for software companies, the report said.

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