Money

Markets boosted by lower PMI - May 3

By Irene Shen (China Daily)
Updated: 2011-05-04 11:20

Consumer staples lead the advance as concerns about inflation decline

SHANGHAI - Stocks on the Chinese mainland rose, driving the benchmark index to its biggest two-day increase in four weeks on Tuesday.

The advance came on the prospect that slowing manufacturing growth may allow the central bank to delay further interest rate increases.

A gauge of consumer staples rose the most among 10 industry groups as inflation concerns eased after the Purchasing Managers' Index fell to 52.9 in April from 53.4 in March.

Huaneng Power International Inc paced gains for utility stocks for a second day on speculation the government may allow power producers to boost prices.

Related readings:  PMI reveals 'appropriate adjustment' in growth  HSBC China Manufacturing PMI remains 51.8 in April  April CPI likely to remain at high level  China stocks close higher Tuesday

A measure of small-company stocks advanced the most since February, led by technology companies.

The manufacturing data are "positive in that the figures are showing that China's series of tightening moves may finally be paying off", said Lim Chang Gue, a fund manager in Seoul at Samsung Asset Management Co, which oversees about $29 billion.

The Shanghai Composite Index, which tracks the bigger of China's stock exchanges, advanced 20.7 points, or 0.7 percent at the 3 pm close.

The two-day gain of 1.6 percent is the most since April 6. The CSI 300 Index increased 0.6 percent and the CSI Smallcap 500 Index added 1.7 percent.

The Shanghai Composite has fallen 4.1 percent from a five-month high on April 18 amid concern that the government will add to 10 increases in the reserve requirements for lenders and four rises in interest rates to cool inflation.

The drop has pared the gauge's advance this year to 4.4 percent.

On May 1, the manufacturing data from the logistics federation and statistics bureau trailed a median forecast of 53.9 in a Bloomberg News survey of 20 economists. A level above 50 signals expansion.

China's interest rate swaps dropped the most in three weeks after manufacturing growth slowed in April, spurring speculation that policy makers will have less of a need to rely on interest rate increases to cool the economy.

Credit Suisse Group AG cut its forecast for consumer price inflation to 5.4 percent from 5.6 percent for the year, analyst Dong Tao wrote in a report. The nation's inflation rate rose to 5.4 percent in March, exceeding the government's full-year inflation target of 4 percent.

A gauge of consumer staples in the CSI 300 rose 2.1 percent. Kweichow Moutai Co, China's largest maker of baijiu liquor, added 2 percent to 185.86 yuan. Chongqing Brewery Co, the second-biggest brewer, jumped 2.9 percent to 60.74 yuan.

Rising material prices have hurt consumer staples producers as they have had difficulty passing on higher costs to consumers. The nation's top planning agency held meetings with major liquor makers about price controls on March 31, Caixin reported April 7.

A gauge of utility companies in the CSI 300 Index climbed 1.2 percent, the second most among the 10 industry groups.

Huaneng Power, the listed unit of China's largest power group, advanced for a second day, jumping 4.1 percent to 6.34 yuan. GD Power Development Co advanced 1.2 percent to 3.40 yuan. China may face a summer power shortage of 30 million kilowatts as supply lags behind demand growth, the China Electricity Council said April 28.

Bloomberg News