2011-01-22 09:43

SHANGHAI - Stocks on the Chinese mainland rebounded from the lowest close in almost four months. The advance came as investors speculated that recent declines were excessive, and the nation's biggest mutual fund boosted its holdings in real-estate companies.

A gauge of property developers rallied the most in two weeks and Poly Real Estate Group Co rose 3.45 percent. Goldman Sachs Group Inc also upgraded the industry, which has led losses over the past year amid concern that China's central bank will boost borrowing costs to curb inflation. CSR Corp climbed 2.25 percent after the Securities Daily said the train manufacturer will sign an agreement with General Electric Co. China Citic Bank Corp gained the most in two weeks after profit rose.

"The rally probably reflects speculation that there won't be any interest-rate increase this weekend," said Li Jun, strategist at Central China Securities Holdings Co in Shanghai. "The longer the central bank delays over rate hikes, the greater the volatility in the market."

The Shanghai Composite Index gained 1.41 percent to 2715.29 at the 3 pm close on Friday. The gauge tumbled 2.92 percent on Thursday, driving valuations to 12.5 times estimated earnings, close to the weakest in two years. Ten-day volatility on the index surged to the highest in two months on Friday. The CSI 300 Index advanced 1.32 percent to 2983.46.

The Shanghai Composite lost 2.7 percent this week, the biggest decline in two months, after the central bank raised the reserve requirement ratio for lenders and faster-than-estimated economic growth fanned speculation that the monetary authority will boost borrowing costs. Tightening concerns have dragged the gauge down 14 percent from a Nov 8 high, while last year's 14 percent loss for the Shanghai index was the biggest drop among the world's 10 biggest stock markets.

The Shanghai Property Index surged 3.8 percent on Friday, trimming a weekly loss to 3.4 percent. Poly Real Estate climbed 3.45 percent to 13.48 yuan ($2.05) after tumbling 6.33 percent on Thursday. Gemdale Corp added 6.52 percent to 7.19 yuan.

Wang Yawei, fund manager at China Asset Management Co, increased the proportion of real-estate companies in his China AMC Large-Cap Selected Fund to 19 percent from 13 percent, while cutting his holdings of banks and insurers to 20 percent from 24 percent. He also lifted his equities allocation to 89.3 percent as of Dec 31, compared with 87.8 percent in the preceding quarter. China Asset Management Co is the nation's biggest mutual fund.

Chinese property stocks were raised to "overweight" from "neutral" at Goldman Sachs, which cited investor expectations on policy tightening and said earnings risks to developers and banks are "limited."

The property gauge plunged 27 percent last year as the Chinese government ordered banks to set aside more reserves six times and boosted rates twice to tame inflation and curb asset bubbles after record gains in lending and property prices.

China's economic growth accelerated to 9.8 percent in the fourth quarter, exceeding the 9.4 percent median estimate of economists surveyed by Bloomberg News, government reports showed on Thursday. Inflation cooled to 4.6 percent in December, according to the reports.

In the countryside, per capita net income rose 10.9 percent to 5,919 yuan, a statistics bureau report showed. The gain was faster than that of urban incomes for the first time since 1997. The report also showed acceleration in retail sales and industrial production at the end of last year.

A gauge tracking industrial companies climbed 2.4 percent, the biggest gain among the 10 industry groups on the CSI 300.

CSR added 2.25 percent to 8.65 yuan on Friday. CSR and General Electric will sign an agreement to import high-speed railway technology, the Securities Daily reported on Friday, citing an unidentified person close to CSR Corp.

Other railway companies rose. China CNR Corp advanced 2.16 percent to 8.97 yuan, and Daqin Railway Co gained 3.58 percent to 8.40 yuan.

Citic Bank added 2.38 percent to 5.17 yuan on Friday.

Bloomberg News