China Stocks Rise as Financials Climb on Money-Rate Drop

China’s stocks rose the most in a week, led by financial and technology companies, as benchmark money-market rates plunged and speculation grew the government will take steps to support the economy.

China Construction Bank Corp. and Huaxia Bank Co. gained at least 1 percent. Sanan Optoelectronics Co. led a rally for technology companies with a 5 percent gain. China Minmetals Rare Earth Co. jumped 10 percent as a gauge of material shares climbed to the highest level since February. The seven-day repurchase rate, a gauge of funding availability in the banking system, tumbled 1.24 percentage points this week as demand for cash eased after banks met quarter-end capital requirements.

The Shanghai Composite Index rose 0.7 percent to 2,058.83 at the close, paring this year’s losses to 2.7 percent. China’s leaders are contemplating whether to add stimulus after manufacturing data pointed to weakness in the economy.

“We have fallen too much and there’s still hope for stimulus measures from the government,” Deng Wenyuan, an analyst at Soochow Securities Co., said by phone. The market’s gain will be limited due to “IPO uncertainty,” he said.

The CSI 300 Index advanced 1 percent to 2,185.47. The Hang Seng China Enterprises Index gained 0.2 percent. Trading volumes in the Shanghai index were 25 percent lower than the 30-day average, according to data compiled by Bloomberg. The nation’s financial exchanges will be shut April 7 for the Tombsweeping holiday.

China this week outlined a package of measures including railway spending and tax relief to support the economy and create jobs after a slowdown endangered Premier Li Keqiang’s target of 7.5 percent growth this year.

Growth Measures

“Looking forward, we expect more pro-growth measures to come (including potential additional railway spending, as well as spending in the areas of environmental protection and clean energy), along with acceleration of structural reforms,” JPMorgan Chase & Co.’s China economist Zhu Haibin wrote in a note yesterday. These structural reforms will likely include cutting more red tape, increasing private-sector investment and revamping resource prices, he wrote.

China Construction Bank, the nation’s second-biggest lender, rose 1 percent to 3.99 yuan. Huaxia Bank advanced 1.7 percent to 8.53 yuan. Gemdale Corp. led a gauge of developers higher, rising 1.7 percent.

A measure of technology companies in the CSI 300 added 2 percent, the most among 10 industry groups. Sanan Optoelectronics posted its biggest gain since Feb. 7. China Minmetals Rare Earth soared by the daily limit to 19.59 yuan.

Liquidity Outlook

The seven-day repo fell 111 basis points today, the most since March 6. A cut in lenders’ reserve-requirement ratios is unlikely as it can only stem from extreme tightness in the interbank market, according to an April 2 client note from DBS Group Holdings Ltd.

The People’s Bank of China said it will continue prudent monetary policy and keep “appropriate” liquidity, according to a statement posted on the central bank’s website yesterday.

The Shanghai measure is valued at 7.97 times 12-month projected earnings, compared with the five-year average multiple of 13.2, according to data compiled by Bloomberg.

The China Securities Regulatory Commission is studying an IPO registration system, the China Securities Journal reported today, citing unidentified people. The securities regulator halted new share approvals in January after restarting them following a more than a one-year suspension.

IPO Concerns

China’s small-company stocks may face pressure in the second quarter from the potential resumption of IPOs, Goldman Sachs Group Inc. said in a report yesterday. The bank also cut its 2014 target for the CSI 300 to 2,600 from 2,880, saying China’s economic growth will rise modestly in the second quarter on policy loosening and an external demand recovery.

The Bloomberg China-US Equity Index slid 1.4 percent yesterday. The iShares China Large-Cap ETF fell 0.3 percent. Tarena International Inc. rose as much as 20 percent in its first day of trading on the Nasdaq Stock Market yesterday, the first Chinese company to debut in New York this year.

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