Chinese equities lifted by Wen's CPI comment

SHANGHAI - Stocks on the Chinese mainland rose to a six-week high after Premier Wen Jiabao said inflation will be controlled and service industries expanded at the second-fastest pace.

China Vanke Co led gains for developers after its first- half sales jumped 79 percent. China Shenhua Energy Co advanced to the highest since January after it was chosen to develop Mongolia's Tavan Tolgoi deposit.

China Construction Bank Corp and Bank of China Ltd paced declines for lenders after Moody's Investors Service said bank loans to local governments exceed estimates.

"The market's interpretation is that most of the negative factors, such as an economic slowdown and interest-rate increases, have been priced in given that valuations are so low," said Wang Zheng, chief investment officer at Jingxi Investment Management Co in Shanghai, which manages about $120 million.

The Shanghai Composite Index, which tracks the bigger of China's stock exchanges, rose 3.5 points to 2816.35, the highest since May 20. The CSI 300 Index advanced less than 0.1 percent to 3122.50.

Wen said consumer prices will be controlled effectively after implementation of the government's measures to curb inflation, China National Radio reported on Tuesday, citing Wen's comments during a trip to Liaoning province.

Wen wrote in an opinion piece in the Financial Times newspaper on June 24 that China's efforts to stem inflation have worked.

A rally for the Shanghai gauge since then erased this year's loss of as much as 6.7 percent amid speculation inflation could ease in the second half and fiscal policies such as income-tax cuts and spending on affordable housing will support the economy. The index has gained 0.3 percent in 2011 and trades at 13 times estimated earnings, compared with 11.1 for an MSCI measure of emerging-market shares, according to data compiled by Bloomberg.

Chinese shares could be poised for a rally over the next one to two months as the economic recovery picks up in the third quarter from the previous three months, according to JPMorgan Chase & Co.

Companies that benefit from fixed-asset investment will likely lead the recovery, JPMorgan analysts led by Frank Li said in a report. The economy might grow more than 8.5 percent in the third quarter, compared with 7.8 percent in the previous three months, they said.

China's service industries expanded at the second-fastest pace this year as new orders and employment climbed, supporting growth amid the government's campaign to cool inflation.

The purchasing managers index was 54.1 in June compared with 54.3 in May, HSBC Holdings Plc and Markit Economics said in a statement on Tuesday. A reading above 50 indicates expansion.

Vanke rose 1.5 percent to 8.84 yuan ($1.37), the highest since April 18. Poly Real Estate Group Co gained 0.4 percent to 11.33 yuan.

Bloomberg News

(China Daily 07/06/2011 page16)