Chinese Stocks in U.S. Head Toward Biggest Gain in Month on Interest Rates

Chinese stocks traded in the U.S. rose toward the highest in a month after the central bank refrained from increasing interest rates and economic indicators showed the economy is withstanding tightening policies.

Aluminum Corp. of China Ltd. and other commodity companies gained as copper futures climbed to a 31-month high in New York and to a record in London after China didn’t raise borrowing costs. PetroChina Co. rose after Xinhua News Agency said the company discovered an oilfield in Gansu province.

“Commodity prices are benefiting from the fact that rates weren’t increased and people are feeling more optimistic about commodities demand,” said Nick Chamie, global head of emerging markets research at RBC Capital Markets.

The Bank of New York Mellon China ADR Index, which tracks American depositary receipts, increased 0.9 percent to 431.26 at 12:53 p.m. New York time, which would be its highest close since Nov. 15. The American Stock Exchange China Index added 0.5 percent to 237.69.

The gains in the U.S. came after the Shanghai Composite Index, which tracks the bigger of China’s stock exchanges, advanced 2.9 percent to 2,922.95 at the close, the biggest gain since Oct. 15. The CSI 300 Index added 3.1 percent to 3,261.06.

In New York, PetroChina, the nation’s biggest oil company, climbed 1.6 percent to $129.62. Cnooc Ltd., China’s largest offshore oil producer, gained 1.9 percent to $238.01. Aluminum Corp. of China, the nation’s biggest producer of the metal, rose 1.4 percent to $23.06.

Material Companies

Material companies are outperforming because the supply of basic materials is limited while demand is inelastic, Hao Hong, a Beijing-based CICC global equity strategist, wrote in a report today. China’s stocks aren’t likely to have a “major correction” in the short term, as November economic data erased concerns about economic growth, CICC analysts including Hou Zhenhai wrote in a separate note.

Data today showed the economy is withstanding government curbs. Industrial-output growth accelerated to 13.3 percent last month from a year earlier, exceeding economists’ median estimate of 13 percent. Urban fixed-asset investment also grew at a faster pace, climbing 24.9 percent in the first 11 months of 2010. Retail sales gained 18.7 percent in November.

The Shanghai gauge has lost 7.5 percent since reaching an almost seven-month high on Nov. 8 on concern that monetary tightening will curb economic growth. The measure is down 11 percent this year, Asia’s worst performer, as the central bank last month twice ordered banks to set aside larger reserves after raising rates in October, the first increase since 2007.

Energy Stocks

In China today, measures of energy and material stocks jumped 5.4 percent and 4.4 percent respectively, the second- and third-biggest gains among the CSI 300’s 10 industry groups.

So-called cyclical stocks with large and medium capitalizations, such as non-ferrous metal producers and financial companies, will rebound if the central bank doesn’t raise rates by the end of the year, CICC said in the report.

A gauge of property stocks rose 3.2 percent today in China. Poly Real Estate Group Co., China’s second-largest developer by market value, gained 4.5 percent to 12.59 yuan. China Vanke Co., the biggest, climbed 3.7 percent to 8.40 yuan. Gemdale Corp., the fourth biggest, rose 2.4 percent to 5.94 yuan.

Consumer prices rose a more-than-forecast 5.1 percent from a year earlier, a statistics bureau report showed over the weekend. Producer-price inflation was 6.1 percent, higher than any of 28 economists surveyed by Bloomberg News had estimated.

Economic Data

The statistics bureau brought forward the release of economic data to Dec. 11 from Dec. 13, signaling to some economists, including Societe Generale SA’s Glenn Maguire, that a rate increase could come as early as the weekend. Instead, the central bank boosted reserve requirements by 50 basis points starting Dec. 20, the third increase in five weeks.

“It’s a sensible policy move by regulators, and some short-term strong medicine will prevent a more serious bubble bursting later,” according to Sandy Mehta, Hong Kong-based chief investment officer for Value Investment Principals.

China won’t raise rates because that would fuel fund inflows from overseas and exacerbate inflation, Huili Asset’s He said, echoing comments made by Wu Xiaoling, a former deputy governor of the central bank, at a hedge fund conference in Shanghai on Dec. 11.

Offshore Oil Engineering Co., the drilling unit of the nation’s largest offshore oil producer, jumped 10 percent to 7.95 yuan in Shanghai. China Oilfield Services Ltd., which has the same parent as Offshore Oil, climbed 10 percent to 24.74 yuan in the city, the highest since May 2008.

Rate Increase Positive

China may announce a five-year development plan for the nation’s advanced manufacturing equipment industry that includes aviation, aerospace, high-speed rail, ocean engineering and intelligent equipment, Shanghai Securities News reported today, citing an unidentified person who helped draft the plan.

Goldman Sachs Group Inc. said it would be “fundamentally positive” if China increases both loan and deposit rates early to curb inflation amid the potential recovery of the U.S. economy in 2011.

Investors want to see higher interest rates, according to Hugh Simon, co-manager of the Dreyfus Greater China Fund. Simon said in an interview on Bloomberg Television he likes Chinese technology, industrial and consumer stocks.