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Most China Stocks Rise as Manufacturing Expands for Third Month

March 1 (Bloomberg) -- Most Chinese stocks rose as growth in the manufacturing industry overshadowed concern the nation’s tight monetary policies will restrict economic expansion.

China Shipbuilding Industry Co. and Changchun Faway Automobile Co. climbed at least 1.7 percent, leading gains among industrial companies, after a purchasing managers index advanced for a third straight month in February. Jiangsu Hengrui Medicine Co. led a gauge of health-care stocks to the biggest drop among 10 industry groups in the CSI 300 Index on speculation the government may introduce policies at this month’s meeting of the National People’s Congress that may curb prices of drugs.

About two stocks climbed for each that declined in the Shanghai Composite Index, which slipped 2.37 points, or 0.1 percent, to 2,426.12 at the close. The gauge swung between gains and losses at least 10 times today after the Securities Times said new lending in February may miss estimates. The CSI 300 lost less than 0.1 percent to 2,633.34.

“There are signs that the slowdown in the economy has been stabilizing but as an indicator of the economy, the liquidity situation isn’t that optimistic and that means the economy hasn’t bottomed out yet,” said Wang Zheng, Shanghai-based chief investment officer at Jingxi Investment Management Co., which manages about $120 million. “These negative factors will put the rally into doubt.”

The Shanghai index advanced 5.9 percent in February, capping its biggest monthly gain since October 2010, on the prospect the central bank will add to a Feb. 18 cut in reserve requirements to halt a decline in economic growth. For the year, the measure has rebounded 10 percent and trades at 10.1 times estimated profit, compared with a record low of 8.9 times on Jan. 6, weekly data compiled by Bloomberg showed.

Sentiment Improves

“Sentiment toward Chinese equities has improved,” Liu Yang, chairwoman of Atlantis Investment Management Ltd., said in a Bloomberg television interview in Hong Kong today. “There’s reduced panic about China’s growth.”

Credit Suisse Group AG raised its year-end targets for China’s benchmark stock indexes, citing a reduced “equity risk premium.” The brokerage increased its estimate for the Shanghai Composite to 3,100 from 2,900, Vincent Chan and Peggy Chan, analysts at Credit Suisse, wrote in a report today.

China Shipbuilding, the nation’s largest maker of vessel equipment, gained 1.7 percent to 6.15 yuan. Changchun Faway rose 3.2 percent to 23.14 yuan. Guangzhou Shipyard International Co., a unit of China’s biggest shipbuilder, climbed 2.6 percent to 17.17 yuan.

The purchasing managers’ index rose to 51.0 last month from 50.5 in January, China’s statistics bureau and logistics federation reported today. That compares with the 50.9 median estimate in a Bloomberg News survey of 24 economists. A reading above 50 indicates expansion. Economic data in the first two months are distorted by a weeklong Chinese New Year holiday.

Consumer Stocks

A separate manufacturing index climbed to 49.6 from 48.8, HSBC Holdings Plc and Markit Economics said today.

GD Midea Holding Co., China’s second-biggest publicly traded appliance maker, climbed 2.9 percent to 14.14 yuan. Gree Electric Appliances Inc., the nation’s largest maker of home air-conditioners, added 3.2 percent to 20.55 yuan.

Investors should buy consumer discretionary stocks before this month’s meeting of the National People’s Congress, according to Barclays Plc. Real wage inflation may help consumers spend more on discretionary products, Barclays said in a report dated today.

Premier Wen Jiabao will target economic growth of 8 percent this year in his report to the NPC in Beijing on March 5, according to eight of 15 economists surveyed by Bloomberg. The People’s Bank of China cut lenders’ reserve-requirement ratio on Feb. 24, the second time since December, to provide credit support to businesses.

Drugmakers Drop

February new lending may reach 500 billion yuan ($79 billion), the Securities Times reported. Lending was constrained by slowing investment, property curbs and waning demand from local government financing vehicles, according to the newspaper. Banks may have extended 810 billion yuan in New loans last month, according to a Bloomberg News economist survey. New lending was 738.1 billion yuan in January. The central bank may release the figure as early as March 11.

An index of health-care stocks sank 0.7 percent today. Jiangsu Hengrui dropped 2.7 percent to 26.06 yuan. Yunnan Baiyao Group Co., a manufacturer of traditional Chinese medicines, lost 1.9 percent to 51.11 yuan.

China may announce plans to adjust prices for drugs in the health insurance list this week, China Business News reported, without saying where it got the information. Drugs for cancer, immunity regulating and digestive system and blood products will be the main targets for price cuts, the report said.

U.S. Trading

Barclays Plc recommended investors avoid drugmakers, saying government policies aimed at expanding hospital capacity and ensuring essential drugs are available at lower cost will be positive for patients and negative for companies.

Zijin Mining, China’s largest gold producer, sank 2.1 percent to 4.65 yuan. Shandong Gold Mining Co., the second biggest, declined 2.5 percent to 36.71 yuan. Gold futures dropped 3.9 percent in Shanghai.

In U.S. trading yesterday, the Standard & Poor’s 500 Index slipped 0.5 percent, trimming its monthly rally to 4.1 percent, as U.S. Federal Reserve Chairman Ben S. Bernanke gave no indication of further measures to stimulate the economy in congressional testimony. Bernanke also said the job market remains “far from normal” and rising oil prices may cause inflation to grow temporarily.

The Bloomberg China-US 55 Index, which measures the most-traded U.S.-listed Chinese companies, retreated 0.4 percent in New York. The iShares FTSE China 25 Index Fund, the biggest Chinese exchange-traded fund in the U.S., was little changed at $40.29 yesterday and gained 3.8 percent last month.

Chinese equities traded in the U.S. posted a second monthly gain, led by companies dependent on domestic consumption. The Bloomberg China-US 55 Index gained 4.7 percent last month after reaching a six-month high of 109.09 on Feb. 16. Online game operator Shanda Games Ltd. and wealth manager Noah Holdings Ltd. jumped more than 20 percent in February.

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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