Shanghai - Stocks on the Chinese mainland rose on Monday, erasing the benchmark index's 2011 loss. The advance came on speculation that the government will offer help to smaller businesses and refrain from boosting interest rates amid signs of slumping economic growth.
SAIC Motor Corp and FAW Car Co advanced more than 3 percent, leading gains for automakers, after the official Xinhua News Agency said auto sales growth may recover in the second half. Zijin Mining Group Co jumped the most in nine months, as investors judged the stock inexpensive. A gauge of smaller companies climbed for a third day after Vice-Premier Wang Qishan was cited by Xinhua as urging lenders to increase financing to small companies.
"Recent economic data showed a picture of a weakening economy and expectations about an easing of tightening measures have grown stronger," said Sun Chao, an analyst at CITIC Securities Co in Shanghai. "If we really see concrete signs of that, stocks will rebound."
The Shanghai Composite Index, which tracks the bigger of China's stock exchanges, gained 53.46 points, to 2812.82 at its close, the highest close since May 20. The CSI 300 Index rose 2.4 percent to 3121.98. The CSI Smallcap 500 Index advanced 2.5 percent.
The Shanghai gauge erased this year's loss of as much as 6.7 percent on speculation that inflation, which reached a 34-month high in May, may be peaking and fiscal policies such as spending on affordable housing will support the economy. Premier Wen Jiabao said on June 24 that efforts to stem inflation have worked. The central bank has raised reserve requirements 12 times and rates four times since the start of last year.
The index is valued at 13 times estimated earnings, compared with the average of 18.9 times over the past five years, according to data compiled by Bloomberg.
China's stocks are the "most attractive" globally and investors should boost their allocations as the government has been successful in achieving a "soft landing" for the economy, according to Michael Preiss, chief equity strategist at Standard Chartered PLC.
Preiss said in an interview from Singapore that investors should "overweight" China's stocks, while staying "neutral" on global equities.
A purchasing managers' index for non-manufacturing industries dropped to 57 from 61.9 in May, according to the China Federation of Logistics and Purchasing on Sunday.
A reading above 50 indicates an expansion. A manufacturing index fell in June to the lowest level in 28 months as export orders and output grew at a slower pace, according to a July 1 report.
SAIC added 3.1 percent to 19.20 yuan ($2.97). Chongqing Changan Automobile Co, the Chinese partner of Ford Motor Co and Mazda Motor Corp, advanced 6.9 percent to 9.86 yuan. FAW Car, which makes passenger cars in China with Volkswagen AG, jumped 9.1 percent to 15.43 yuan.
Auto consumption may rise in the July to December period as liquidity is expected to ease, boosting consumer demand for mid- and high-end passenger cars, Xinhua said, citing Dong Yang, deputy head of the China Association of Automobile Manufacturers. A drop in oil prices and subsidies for alternative-energy vehicles may also help boost sales, it said.
The Chinese government may announce new policies to boost auto sales soon, according to an Economic Observer report posted on Xinhua's website.