SHANGHAI - Stocks on the Chinese mainland rose on Tuesday, driving the benchmark index to its best January performance since 2009, as Greece made progress in debt-swap talks and on speculation the Chinese government will encourage pension funds to invest in equities.

Huaneng Power International Inc, the listed unit of China's largest electricity producer, rose 2.4 percent on prospects a cap on coal prices will bolster earnings this year.

Sany Heavy Industry Co climbed 1.6 percent after the company said it will buy a majority stake in a German machinery maker. Angang Steel Co slid the most in two months after the steelmaker estimated a loss for 2011.

"The hope lies in government support measures such as encouraging more local pensions to invest in stocks and the market believes these measures will materialize soon," said Wei Wei, an analyst at West China Securities Co in Shanghai.

"Corporate earnings are slowing but most of this looks like they are being priced into equities now."

The Shanghai Composite Index rose 7.57 points, or 0.3 percent, to 2292.61. The CSI 300 Index added 0.1 percent to 2464.26.

The Bloomberg China-US 55 Index, the measure of the most-traded US-listed Chinese companies, retreated 1.5 percent on Monday in New York.

The Shanghai Composite climbed 4.2 percent in January on speculation slowing growth will prompt the central bank to relax monetary policies and the government will take measures to support stocks.

The index fell 22 percent last year after the People's Bank of China raised interest rates three times and reserve ratios six times to cool inflation.

It trades at 9.4 times estimated earnings, near the record low of 8.9 times reached on Jan 6, according to weekly data compiled by Bloomberg.

China may announce methods for local pensions to invest in the stock market as soon as the first quarter, the Securities Times reported, citing an unidentified person.

As much as 30 percent of pension assets, or about 580 billion yuan ($91.6 billion), may be allowed for stock investment, according to the newspaper, which is operated by the People's Daily.

Huaneng Power advanced 2.4 percent to 5.50 yuan even after the electricity supplier said profit probably slumped more than 50 percent last year. Analysts including China Merchants Securities Ltd's Peng Quangang and Ping An Securities Ltd's Wang Fan said Huaneng's earnings estimate was in line with their forecasts.

"We are pretty optimistic about their performance this year given the government cap on coal prices and the increase of the electricity tariff," said Peng, who recommended buying the stock.

To help limit losses at power utilities, the central government capped spot coal prices at northern Chinese ports from the start of this year. Electricity rates were also raised nationwide in December.

Datang International Power Generation Co, a unit of China's second-biggest electricity producer, gained 1.8 percent to 5.20 yuan. Huadian Power International Corp, the listed unit of the fourth-largest power producer, rose 2.2 percent to 3.32 yuan.

Sany Heavy, the biggest Chinese machinery maker, gained 1.6 percent to 14.21 yuan. The construction-equipment maker will pay 360 million euros for German concrete-pump maker Putzmeister Holding GmbH to add technology and expand abroad.

Listed companies have started to announce annual earnings reports and will finish before the end of April.

Forty-five companies in the Shanghai Composite have released annual profits so far, gaining 19 percent on average and trailing analyst estimates by 3.2 percent, according to data compiled by Bloomberg. That compared with an increase of 38 percent in the previous year.

China's tight monetary policies and cost increases are hurting corporate profits, according to UBS AG. Corporate profit growth will be about 15 percent in 2011, compared with analysts' forecasts for about 20 percent, Gao Ting, chief China strategist at UBS, said in an interview at Bloomberg's offices in Shanghai.

"The market's estimates are still too high," Gao said. For non-financial companies, fourth-quarter earnings might have declined 5 to 10 percent from the previous year, while first-quarter profit might decline 10 percent on average, he said.

Bloomberg News