July 31 (Bloomberg) -- China stocks rose, with the Shanghai Composite set for its biggest monthly gain in two years, as Datang International Power Generation Co. rallied on increased profit and higher metals prices drove materials producers higher. Datang Power, a unit of China’s second-biggest electricity producer, surged by the daily 10 percent limit after saying first-half income likely gained more than 50 percent. Jiangxi Copper Co., the nation’s biggest producer of the metal, advanced 3.1 percent and PetroChina Co., the country’s largest oil company, added 1.6 percent. The Shanghai Composite Index rose 60.22, or 1.8 percent, to 3,381.78 as of 1:34 p.m., erasing a weekly loss. The gauge is up 14 percent in July, set for its biggest advance since August 2007 and its seven straight month of gains, as government spending and record bank lending spur a rebound in the world’s third-largest economy. “I still believe the market has more room for gains as factors such as ample liquidity and an economic recovery that has sustained the rally haven’t changed yet,” said Wang Zheng, a fund manager at Jingxi Investment Management Co. in Shanghai. The gauge plunged 5 percent on July 29, its biggest drop in eight months, on speculation the government will curb inflows into a market that had doubled from last year’s low. Transactions on Chinese stock exchanges surged to $63 billion that day, exceeding the $58 billion that changed hands on markets in New York, London and Tokyo, according to Bloomberg data going back to January 2008. The CSI 300 Index, measuring exchanges in Shanghai and Shenzhen, added 1.1 percent to 3,678.09 today. Power Generation Datang Power climbed 0.95 yuan to 10.47 yuan. The company said increased sales revenue from changes to tariffs and prices boosted profit, according to a statement to the Hong Kong Stock exchange. Other power suppliers also rose. Huaneng Power International Inc., the listed unit of China’s largest power group, climbed 4.7 percent to 9.12 yuan. China Yangtze Power Co., owner of the world’s biggest hydropower project, advanced 5.8 percent to 15.65 yuan. Jiangxi Copper gained 3.1 percent to 45 yuan. PetroChina rose 1.6 percent to 15.54 yuan. Aluminum Corp. of China Ltd., the nation’s biggest maker of the lightweight metal and also called Chalco, added 1.2 percent to 18.38 yuan. A gauge of six metals including copper and gold in London jumped 4 percent, the most since Oct. 7. Crude oil soared 5.7 percent in New York yesterday, the biggest gain since April 9. Bank Lending Stocks on the Shanghai index trade at 36.6 times reported earnings, near an 18-month high and twice the average of emerging markets. The gauge is up 85 percent this year as banks tripled new loans to 7.37 trillion yuan in the first half from a year earlier to support a 4 trillion-yuan government stimulus package. China may cut new loans on concern a rally in the nation’s stocks has grown too fast, according to former Morgan Stanley chief Asian economist Andy Xie. “The government is worried that this bubble is becoming too big so they’re going to cut credit growth by probably half in the second half,” said Xie, now an independent economist, in a Bloomberg Television interview in Hong Kong today. “I think the property and stock markets will come under pressure probably around October time.” The banking regulator said yesterday it plans to tighten rules on working capital loans, seeking to prevent misuse of funds. New loans in July may be less than 500 billion yuan, the Shanghai Securities News reported today, without saying where it got its information. Shanghai Construction Co. rose 4.2 percent to 17.50 yuan. The company said it plans to swap about 358 million shares for 5.2 billion yuan of assets from its parent. Shanghai Construction get stakes in 12 of its parent’s units and property in 9 locations, it said. --Zhang Shidong. With assistance from Chua Kong Ho in Shanghai. Editors: Richard Frost, Linus Chua To contact Bloomberg News staff for this story: Zhang Shidong in Shanghai at +86-21-6104-7014 or szhang5@bloomberg.net

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