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China Swaps Jump Most in Almost Three Weeks as Economy Improves

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Dec. 3 (Bloomberg) -- China’s interest-rate swaps jumped the most in almost three weeks on signs that the world’s second-largest economy is recovering from a seven-quarter slowdown.

Manufacturing expanded in November at the fastest pace in seven months, data released Dec. 1 showed. China is expected to keep its annual economic growth target at 7.5 percent next year, according to nine of 16 analysts surveyed Nov. 22-30 by Bloomberg News. Top economic officials meet this month to map out policies for 2013 and may set the goal that will be announced in March at the annual session of parliament.

“Rates should be on a gradual uptrend, with more data confirming the Chinese economy is bottoming out,” said Frances Cheung, a strategist at Credit Agricole CIB in Hong Kong.

Two-year swap contracts that exchange the one-year deposit rate for a fixed payment climbed eight basis points, or 0.08 percentage point, to 2.87 percent in Shanghai, according to data compiled by Bloomberg. That was the biggest increase since Nov. 13. Buyers of the contracts receive the current deposit rate for one year, after which the floating payment is reset for the second year at the prevailing rate.

China’s Purchasing Managers’ Index was at 50.6 in November, the National Bureau of Statistics and China Federation of Logistics and Purchasing said on Dec.1 in Beijing. That compares with the 50.8 median estimate in a Bloomberg News survey of 28 analysts and 50.2 the previous month. A reading above 50 indicates manufacturing expanded.

The People’s Bank of China gauged demand for sales of seven-, 14- and 28-day reverse-repurchase contracts this week, according to a trader at a primary dealer required to bid at the auctions. The PBOC also asked banks to submit orders for 28- and 91-day repurchase contracts this morning, the trader said.

The one-year interest-rate swap, the fixed cost to receive the seven-day repo rate, fell one basis point to 3.40 percent, according to data compiled by Bloomberg. The yield on 3.39 percent government bonds due August, 2022 rose five basis poitns to a one-month high of 3.58 percent, according to the National Interbank Funding Center.

To contact the reporter on this story: Kyoungwha Kim in Singapore at kkim19@bloomberg.net

To contact the editor responsible for this story: James Regan at jregan19@bloomberg.net

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