Hong Kong stocks rose, sending the Hang Seng Index (HSI) to its highest level in two months, on signs earnings are improving and speculation the Central Government's steps to slow inflation won't curb the nation's economic growth.

China Construction Bank Corp, the country's second-largest lender, and smaller rival Bank of China Ltd gained at least 1.2 percent. Aluminum Corp of China Ltd, the biggest supplier of the metal, increased 3.9 percent on speculation demand will increase. Wynn Macau Ltd advanced 4.6 percent after CLSA Asia-Pacific Markets said gaming revenue in the world's biggest gambling hub will rise 30 percent this year.

"We're still quite comfortable with China's growth outlook despite the government's efforts to rein in inflation," said Terrace Chum, who helps manage about $6 billion at MFC Global Investment Management in Hong Kong. "Investors should remain cautious. We expect consumer prices to peak in the first half."

The HSI climbed 1.1 percent to 24,419.62, its highest close since November 11. Almost four stocks rose for each that dropped on the 45-member gauge. Its futures gained 0.8 percent to 24,394. The Hang Seng China Enterprises Index advanced 1.3 percent to 13,132.33.

The HSI rose for a fourth straight week last week as banks extended their gains and concern about Europe's debt crisis eased. Shares in the gauge traded at an average 13.1 times estimated earnings at the close Wednesday, compared with about 17.2 times at the start of 2010.

China's December inflation rate was 4.6 percent and the economy grew 10.3 percent last year, Phoenix Television reported on its website, without saying where it got the information. No comment was immediately available from the statistics bureau, which was due to release economic data in Beijing today.

Government reports will probably show inflation in China cooled to 4.6 percent in December and the economy likely expanded 9.4 percent in the fourth quarter, according to the median estimates of economists surveyed by Bloomberg News.

The Central Government ordered banks to set aside more reserves six times and boosted interest rates twice in 2010 to curb asset bubbles after record gains in lending and property prices. Last week, the People's Bank of China ordered lenders to increase reserve ratios by another 50 basis points starting today.

"We're still very positive on Asia and emerging markets, but a lot of governments in Asia are beginning to take quite punitive measures to rein in inflation," Stephen Davies, Singapore-based chief executive officer of Javelin Wealth Management, said on Bloomberg Television. "Whilst those measures are working their way through in the system, I think we're going to be seeing people focusing on what appears to be a steadily improving recovery story in the US."

Li & Fung Ltd advanced 3.2 percent to HK$48.85. Yue Yuen Industrial Holdings Ltd climbed 2 percent to HK$27.80. Techtronic Industries Co, the maker of Hoovervacuum cleaners and Ryobi power tools, climbed 4.9 percent to HK$10.68.

Industrial & Commercial Bank of China Ltd rose 0.7 percent to HK$6.04. China Construction Bank climbed 1.4 percent to HK$7.22. Bank of China increased 1.2 percent to HK$4.29.

Raw-material producers climbed on speculation continuing expansion in the world's fastest-growing major economy will boost demand. Aluminum Corp increased 3.9 percent to HK$7.80. Jiangxi Copper Co rose 0.8 percent to HK$26.15. China Shenhua Energy Co advanced 2.6 percent to HK$33.90.

China Shipping Container Lines Co climbed 3.1 percent to HK$3.94 before trading was halted.

Macao gaming companies gained after CLSA raised its revenue growth forecast for the world's biggest gambling hub to 30 percent from 20 percent.

Sands China Ltd. increased 5.1 percent to HK$20.15. SJM Holdings Ltd, controlled by billionaire Stanley Ho, gained 4.8 percent to HK$14.98.

Bloomberg

(HK Edition 01/20/2011 page3)