China Stocks Advance For Second Day; Commodity Producers Gain, Banks Fall

China stocks rose for a second day after U.S. reports showed employment and consumer sentiment improved, boosting confidence in a global economic recovery and driving commodity prices higher.

PetroChina Co. and zinc producer Zhuzhou Smelter Group Co. paced gains by raw-material producers after crude oil jumped the most in four months and metal prices advanced. Industrial & Commercial Bank of China Ltd. declined among lenders on speculation policy makers will cut new loan growth and raise borrowing costs next year to tame inflation.

“The global economy won’t be headed for a double-dip and that’ll help China’s stocks to stabilize,” said Wei Wei, an analyst at West China Securities Co. in Shanghai. “A stable external economic environment will also support the market fundamentally.”

The Shanghai Composite Index, which tracks the bigger of China’s stock exchanges, added 7.88, or 0.3 percent, to 2,867.82 as of 9:39 a.m., adding to yesterday’s 1.1 percent advance. The CSI 300 Index rose 0.3 percent to 3,186.47.

The Shanghai gauge lost 9.5 percent as of yesterday since reaching an almost seven-month high on Nov. 8 on concern that accelerated monetary tightening will crimp economic growth.

The People’s Bank of China said yesterday it will strengthen liquidity management and “normalize” monetary conditions after having twice this month ordered banks to hold more in reserves to curb inflation that’s at a two-year high.

‘Biggest Risk’

China stocks have about 20 percent “upside” next year amid “abundant” liquidity and “promising” EPS growth, Credit Suisse Group AG said. Inflation is the “biggest risk” and may reach 5 percent next year, analysts Vincent Chan and Peggy Chan wrote in a report. Lending and deposit rates may increase 125- 150 basis points in 2011, the note said.

PetroChina, the nation’s biggest oil company, added 1 percent to 11.06 yuan. Zhuzhou Smelter, China’s biggest producer of refined zinc, advanced 3.5 percent to 16.48 yuan.

Crude oil for January delivery surged 3.2 percent yesterday in New York to $83.86 a barrel, the biggest gain since July 22. The London Metal Exchange Index of prices for six industrial metals including copper and aluminum increased 1.4 percent yesterday after three consecutive declines.

The Standard & Poor’s 500 Index rose 1.5 percent yesterday, the most in four days, after the U.S. Labor Department said jobless claims fell to 407,000 last week. The median projection of economists surveyed by Bloomberg News called for a drop to 435,000. The Thomson Reuters/University of Michigan final index of November consumer sentiment increased to 71.6, the highest level since June and exceeding the median economist estimate of 69.5.

Bank Lending

The nation will use quantitative and price tools to manage liquidity, Hu Xiaolian, a deputy governor of the People’s Bank of China, said in a statement website yesterday after the market closed. China will also control the pace of bank lending for the remainder of this year as it will be difficult to stay within the government’s 7.5 trillion yuan （$1.13 billion） target for new loans in 2010, the official said.

Industrial & Commercial Bank of China Ltd., the nation’s biggest listed lender, dropped 1.8 percent to 4.35 yuan, extending yesterday’s 10 percent slump and set for the lowest close since Oct. 29. Bank of China Ltd., the fourth largest, dropped 0.6 percent to 3.26 yuan.

“The government’s intention to curb inflation by even tighter monetary policies has become very clear to the market,” said Yuan Yi, chief strategist at Shenyin & Wanguo Securities Co. in Shanghai. “Expectations for tighter policies will cause market volatility and deeper corrections by the year end.”

Interest Rates

Inflation reached 4.4 percent last month, the highest in two years. Analysts at nine banks surveyed by Bloomberg News last week predicted the PBOC will boost borrowing costs a second time by year-end.

China will have about 6.5 trillion yuan in new lending next year, China Securities Journal reported, citing an unidentified person. The target for new lending may be between 6 trillion yuan and 6.5 trillion yuan in 2011, less than “street” expectations of 7 trillion yuan and 7.5 trillion yuan, Credit Suisse said.

--Zhang Shidong. Editors: Richard Frost, Darren Boey