SHANGHAI - Stocks on the Chinese mainland rose for a third day on Thursday, the longest stretch of gains in two months. The advance came after the government announced measures to help small companies hurt by the nation's tight monetary policies.

Zhuzhou Times New Material Technology Co and Hainan Expressway Co surged at least 5 percent after the government offered tax breaks and easier access to loans for small and medium-sized enterprises. China Gezhouba Group Co led gains for water companies after the Shanghai Securities News reported that China plans to invest 1.8 trillion yuan ($282 billion) in the industry.

"The government's package of measures may support a rebound," said Li Jun, a strategist at Central China Securities Co in Shanghai. "The recent wave of government moves suggests the worst part of the tightening has passed."

The Shanghai Composite Index advanced 18.8 points, or 0.8 percent, to 2438.79 at 3 pm local time, extending a 3 percent rally on Wednesday, the most since Oct 15, 2010. The CSI 300 Index gained 0.7 percent to 2662.60.

The Shanghai index has tumbled 13 percent this year, driving down estimated price earnings to 11.3 times, compared with a record low of 10.8 times set on Oct 10, according to data compiled by Bloomberg.

China has raised interest rates three times this year and ordered lenders to set aside a bigger portion of their deposits to curb inflation, which is running near a three-year high.

Stocks rallied this week after Central Huijin Investment Ltd began buying shares of the nation's four-biggest lenders. Xinhua News Agency reported on Wednesday that regulators approved cross-border exchange-traded funds.

The 21st Century Business Herald reported on Wednesday that the parent companies of train makers CSR Corp and China CNR Corp may get cash injections from the government.

China announced measures to help small companies after the collapse of manufacturers in Wenzhou city highlighted growing risks to the economy. A report on Thursday showed that the nation's trade surplus last month fell to the lowest level since May as export growth slowed.

The government will provide financial support and preferential tax policies for small companies, the State Council said in a statement on Wednesday, after a meeting at which Premier Wen Jiabao presided.

The government will be more tolerant of bad loan ratios for small-company loans, the Cabinet said.

China's measures are "significant policy support" that will keep the growing risks in Wenzhou "under control", according to Bank of America Corp.

Bloomberg News