China Stocks Fluctuate; Banks Advance, Commodity Producers Drop

Jan. 21 （Bloomberg） -- China’s stocks swung between gains and losses as concern the central bank will tighten monetary policy to combat inflation countered positive U.S. economic data.

Jiangxi Copper Co. paced declines among commodity producers after the China Securities Journal said the central bank may raise interest rates next month and oil and metal prices fell. Industrial & Commercial Bank of China Ltd. paced gains by banks. Stocks were buoyed by higher U.S. home sales and falling claims for unemployment benefits, which boosted confidence in the global economic recovery.

“Investors believe an interest-rate hike is imminent and may come as soon the beginning of February,” said Sun Chao, an analyst at Citic Securities Co. in Shanghai.

The Shanghai Composite Index, which tracks the bigger of China’s stock exchanges, added 0.77, or less than 0.1 percent, to 2,678.42 at 9:45 a.m., after falling as much as 0.4 percent. The CSI 300 Index added 0.1 percent to 2,945.9.

The Shanghai Composite has lost 4.1 percent this week, set for the biggest decline since Nov. 12, after the central bank raised the reserve requirement ratio for lenders and faster- than-estimated economic growth fanned speculation China will boost borrowing costs. Tightening concerns have dragged the gauge down 15 percent from a Nov. 8 high.

Inflation Problem

Inflation in China “borders on being a serious problem,” said Stephen Roach, non-executive chairman of Morgan Stanley Asia Ltd. Roach, speaking in a Bloomberg television interview on “Surveillance Midday” with Tom Keene, said China can’t afford high inflation at a time when it’s trying to engineer a transition to a consumption-led growth model.

China’s economic growth accelerated to 9.8 percent in the fourth quarter, exceeding the 9.4 percent median estimate of economists surveyed by Bloomberg News, while inflation cooled to 4.6 percent in December, government reports showed yesterday. Citigroup Inc. and Credit Suisse Group AG said Chinese inflation may peak at as much as 6 percent in the first half.

The central bank may raise interest rates around the Lunar New Year if consumer prices aren’t looking “optimistic”， the China Securities Journal said in a front-page editorial today. There’s also room for an increase in the reserve requirement ratio, it said. The Lunar New Year falls at the start of February.

Oil for February delivery fell $2 to settle at $88.86 a barrel on the New York Mercantile Exchange, the biggest decline since Jan. 4. The London Metal Exchange Index of prices for six industrial metals including copper and aluminum lost 1.7 percent, the most since Nov. 16.

Purchases of existing houses in the U.S. jumped 12 percent in December to a 5.28 million annual rate, the National Association of Realtors said in Washington. Claims for unemployment benefits fell and the Conference Board’s gauge of the economic outlook for the next three to six months rose.