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Elong Jumps as Stimulus Spurs Growth Outlook: Overnight

Chinese stocks rose the most in a month in New York trading, on speculation the government’s investment and tax incentive plans will help stem a slowdown in Asia’s fastest growing economy.

The Bloomberg China-US Equity Index of the most-traded Chinese shares in the U.S. jumped 2.5 percent to 88.13 yesterday in New York. It climbed 2.3 percent this week, snapping a three-week decline. Youku Inc., the most popular video sharing website operator, surged the most in two months while Ambow Education Holding Ltd. extended its rally to a third day. Computer security software developer Qihoo 360 Technology Co. led gains in Internet companies after announcing a partnership with an online games operator.

The Bloomberg gauge posted the first weekly gain this month after China’s cabinet said this week it will expand a value-added tax trial to 10 additional provinces and cities, as part of a pledge to implement “structural” tax cuts to boost the economy. Local governments have also started announcing investment plans, with the central Chinese city of Changsha unveiling an 829.2 billion yuan ($130 billion) investment plan this week.

“China’s central and local authorities will do whatever they can to ensure stable economic growth before the transition to a new government later this year,” Qinwei Wang, an analyst at Capital Economics Ltd., said in a telephone interview yesterday from London. “It typically takes two quarters to see the effects of previous stimulus measures on the economy, and a likely rebound starting from the third quarter will be reflected in Chinese stocks.”

ETF Gains

The iShares FTSE China 25 Index Fund, the biggest Chinese exchange-traded fund in the U.S., increased 2.6 percent yesterday to $34.12, the biggest gain in four weeks. The Standard & Poor’s 500 Index advanced 1.9 percent to 1,385.97 in its second day of a rally, the highest level since May 3, amid expectations the European Central Bank will buy bonds to help lower borrowing costs and preserve the euro.

Barclays Capital forecast another 25 basis-point cut in China’s interest rate, from its previous prediction of no more rate reductions this year, economists headed by Jian Chang said in a July 27 report, citing a worsening external outlook. China has reduced benchmark interest rates three times since July last year to spur lending. The economy will pick up in the third quarter with policy easing and stimulus from local governments, according to the report.

Youku gained 7.7 percent, the most since May 21, to $18 yesterday in New York. Its smaller competitor Tudou Holdings Ltd. climbed 7.6 percent to a two-week high of $28.09. The two companies will hold shareholders’ meetings in August to approve their merger.

Ambow, Qihoo

Ambow Education, a private tutoring service provider based in Beijing, surged 8.8 percent to $2.61, the steepest rally since September.

Qihoo advanced 5.5 percent to $15.43. The company, which also develops computer desktop software, said in a statement yesterday it will cooperate with Giant Interactive Group Inc. to provide online games to its users.

Perfect World Co., an online games developer, rallied 5.9 percent to $9.66.

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