SHANGHAI - China's stocks rallied the most in three weeks on speculation that slowing inflation will provide more leeway for the central bank to ease monetary policy.

Stocks also got a lift from a government pledge to support first-time homebuyers.

Jiangxi Copper Co, the largest producer of the metal, soared 10 percent after an economist said China might "move shortly" to help Europe resolve its debt crisis. China Vanke Co, the biggest developer, rose 2.9 percent after the central bank said the government would increase support for the construction of affordable housing.

China Petroleum & Chemical Corp and PetroChina Co led a climb for refiners after the government raised domestic fuel prices for the first time in 10 months.

January inflation figures are scheduled for release on Thursday.

"It looks as if the market is pricing in expectations about pretty low inflation, which will allow the government to relax its tight monetary policies, such as (making) a cut in the reserve requirement ratio," said Wu Kan, a Shanghai-based fund manager at Dazhong Insurance Co, which oversees $285 million.

"It's still possible the government will relax its curbs on the property market to avoid a hard landing for the economy."

The Shanghai Composite Index rose 55.63 points, or 2.4 percent, to 2,347.53, the most since Jan 17. The CSI 300 Index gained 2.9 percent to 2,528.24.

The Bloomberg China-US 55 Index, the measure of the most-traded US-listed Chinese companies, added 0.2 percent on Tuesday.

Inflation outlook

The Shanghai Composite has rebounded 6.7 percent this year, after plunging 33 percent in the previous two years, on speculation the central bank will further cut reserve requirement ratios to spur lending to small companies.

The central bank announced on Nov 30 a cut in reserve ratios, the first since 2008. It lifted reserve ratios six times last year and raised interest rates to cool inflation.

Consumer prices probably rose 4 percent in January, compared with a 4.1-percent gain in December, according to 33 economists' estimates compiled by Bloomberg.

Inflation might drop to as low as 3.2 percent this month from a three-year high of 6.5 percent in July, Bank of America Corp said.

China's efforts to curb inflation are starting to pay off in the bond market, where yields are poised to exceed consumer-price increases for the first time in 16 months.

The yield on 10-year government bonds gained 7 basis points this month to reach 3.48 percent. The yield trailed inflation since October 2010, resulting in a so-called negative real yield.

Financials rally

A gauge of financial companies in the CSI 300 jumped 2.6 percent. Industrial & Commercial Bank of China Ltd, the nation's biggest listed lender, rose 1.9 percent to 4.41 yuan (70 US cents).

Citic Securities Co, China's biggest listed brokerage, jumped 4.1 percent to 10.95 yuan.

Vanke led gains for property stocks, rising 2.9 percent to 7.59 yuan. Poly Real Estate Group Co, China's second-largest developer by market value, added 2.9 percent to 10.42 yuan, even after the second-biggest developer said on Tuesday that contract sales fell 69 percent in January.

Officials will ensure that "loan demand from first-home families" is met, the People's Bank of China said on its website on Tuesday.

A crackdown on real-estate speculation threatens to trigger a property slump in the world's second-biggest economy. Concerns about the outlook for China's economy increased after the International Monetary Fund warned this week that its expansion would be cut almost in half should Europe's debt crisis worsen.

China might "move shortly" to help Europe resolve its debt crisis by providing an investment of as much as 100 billion euros ($132 billion), said Yuan Gangming, an economist at the Chinese Academy of Social Sciences.

The money would probably go to the European Financial Stability Facility, the euro bailout fund. He added that these forecasts are his own and don't necessarily represent government plans. Economists from the think tank provide policy advice without direct involvement in decisions.

Helping Europe is like "killing two birds with one stone", Yuan said in an interview in Beijing on Monday. The action would have many benefits and few drawbacks, Yuan said.

A measure of material stocks in the CSI 300 climbed 5 percent, the biggest gainer among the 10 industry groups.

Jiangxi Copper surged the 10-percent daily limit to 27.28 yuan. Tongling Nonferrous Metals Group Co, China's second-biggest copper producer, also advanced by 10 percent to 21.73 yuan.

Fuel price hikes

Sinopec, China's biggest refiner, advanced 1.7 percent to 7.78 yuan. PetroChina, the second-largest, climbed 1.7 percent to 10.26 yuan.

Retail gasoline and diesel prices rose 300 yuan a metric ton from Wednesday. The hikes were announced by the National Development and Reform Commission, the nation's top planning agency, on its website on Tuesday.

Bloomberg News