Shanghai Composite Index rises amid government spending plans and upbeat economic data.
China's main stock index surged over 6% on Wednesday, posting its biggest gain since November, after the government said it would expand its fiscal spending plan and data supported hopes for an early economic recovery.
The Shanghai Composite Index rocketed 6.12% in heavy trade to close at 2,198.107 points, just off the day's high of 2,201.727. Sectors rose sharply across the board.
Gaining Shanghai A shares overwhelmed losers by 917 to one, with over 50 shares rising their 10% daily limits. Turnover in Shanghai A shares climbed to a one-week high of $18.6 billion.
China will increase spending in areas such as infrastructure and manufacturing on top of the 4 trillion yuan stimulus package that it announced in November, a senior economic planning official said on Wednesday.
This fueled hopes that Premier Wen Jiabao would make a major announcement on fresh stimulus steps in an address to parliament on Thursday. Analysts have been speculating that the package could be expanded to 6 trillion yuan or conceivably even 8-10 trillion yuan.
"Investors are excited about Wen's speech tomorrow morning. The index might be volatile but it is still likely to touch 2,300 points during the session, given hopes for an economic recovery and the possible expansion of the stimulus plan," said Huatai Securities analyst Chen Huiqin.
The market was also encouraged by news that China's official purchasing managers' index (PMI) rose to 49.0 in February. It remained below the "boom or bust" line of 50, indicating that manufacturing was still contracting, but posted a big improvement from 45.3 in January.
Meanwhile, Chinese banks extended 1.1 trillion yuan in new loans last month, Market News International reported late on Tuesday, citing an unnamed senior banking source. That would be less of a slowdown than expected from January's record 1.62 trillion yuan.
Nomura International, which has for some months been one of the more bullish analysts of China's economy, wrote in a report: "The continued rise in the PMI confirms our view that an economic recovery is already underway."
The market added to its gains after some news agencies including Reuters quoted parliamentary spokesman Li Zhaoxing as saying, "We will lower the stamp duty rate on securities trading."
However, a transcript of his remarks later showed that Li was referring to a stamp tax cut already conducted in 2008, and was not announcing any future cut.
Economy
Many analysts remain less optimistic than Nomura about the economy; major data such as exports and industrial production have not yet started to improve.
Also, any extended rally by the market might prompt regulators to allow a resumption of initial public offers of equity, which could worsen the supply/demand balance for shares.
"But the parliament session has sent a signal to investors that the government is willing to be flexible about policies to aid the economy," said Xiangcai Securities analyst Li Shiming.
"The government seems ready to invest any amount of money to aid the economy."
He and other analysts said the index had this week confirmed strong technical support around 2,000 points, which was resistance in late December and January. Major technical resistance lies around 2,400 points, last month's peak.
Also helping sentiment was a statement by a senior official at China Investment Corp, the country's sovereign wealth fund, that it would continue to raise its stakes in three top banks.
It began modest purchases of shares in Industrial and Commercial Bank of China, Bank of China and China Construction Bank late last year as a step to support the market. Bank of China shares jumped 9.37% to 3.50 yuan.
Property
The property subindex surged 7.61% after some developers, such as Beijing Capital Land and Shimao Property Holdings, posted strong year-on-year sales rises for the first two months of 2009, though that was partly due to price cuts. Leading developer Vanke shot up 6.47% to 7.90 yuan.
Jiangxi Copper gained 10% to 16.73 yuan after global commodities prices rebounded. Big coal producer Shenhua Energy rose 5.58% to 19.48 yuan after saying its 2008 net profit rose 29.7%.
SDIC Power Huajing Power Holdings soared 10% to 10.04 yuan after being suspended since Dec. 8. It said it planned a placement of shares, worth about 7 billion yuan, to buy 100% of SDIC Electric Power Co, which belongs to the same parent.
"The purchase price for the asset is good, which will help to increase profits this year," Great Wall Securities electric power analyst Zhang Lin said.
SDIC Xinji Energy advanced 6.05% to 9.46 yuan; traders said investors speculated that it might also buy assets from its state-owned controlling shareholder, State Development and Investment Corp.
Tianjin Global Magnetic Card raced up 47% to 5.15 yuan after being suspended since Dec. 19. It said late last month that its net profit in 2008 could hit 200 million yuan, up from 12 million yuan in 2007.
