Stocks inch up at noon on rate increase

DOMESTIC stocks edged up in the morning session today, encouraged by insurance firms after the central bank raised interest rates, boosting returns on their fixed-income investments.

The Shanghai Composite Index, which tracks yuan-denominated A shares and hard-currency B shares, jumped 0.32 percent, or 15.89 points, to 5,059.43 at 11:30am today.

Gainers in the Shanghai market outnumbered losers 392 to 364 while 90 were unchanged.

The Shenzhen Composite Index, which covers the smaller mainland stock market, gained 0.32 percent, or 4.29 points, to 1,361.68.

China raised interest rates for a sixth time this year to cool decade-high inflation in the world's fastest-growing major economy. The benchmark one-year lending rate will increase to 7.47 percent, a nine-year high, from 7.29 percent, starting today, the People's Bank of China said yesterday. The one-year deposit rate will rise to 4.14 percent from 3.87 percent.

Insurers benefit from the rate increase by using new premiums to buy fixed-income products that have higher yields

China Life, the nation's biggest insurer, added 1.85 percent, or 1.06 yuan (14 US cents), to 58.38 yuan. Ping An Insurance, the second biggest, rose 1.76 percent, or 1.85 yuan, to 107.23 yuan. More than 50 percent of the assets of the two insurers are in fixed-income investments, according to Bloomberg News Service.

But the higher rate dampened property developers this morning on concern higher borrowing costs will curb profitability and deter home

purchases.

China Vanke Co, the nation's biggest listed property developer, lost 1.34 percent, or 0.38 yuan, to 28 yuan while Gemdale Corp, a Chinese developer that is allied with ING Groep NV, tumbled 4.02 percent, or 1.64 yuan, to 39.15 yuan.

Airlines enjoyed a rally this morning after Chinese yuan advanced to the highest since a fixed exchange rate with the dollar ended in July 2005.

Air China, the world's biggest airline by market value, jumped 3.75 percent, or 0.94 yuan, to 26 yuan while China Eastern, the nation's third-largest carrier, added 2.29 percent, or 0.42 yuan, to 18.75 yuan. China Southern, the nation's biggest carrier, climbed 3.51 percent, or 0.89 yuan, to finish the session at 26.24 yuan.

The yuan advanced 0.12 percent to 7.3609 per dollar as of 9:36am in Shanghai, from 7.3694 at the close yesterday, according to the China Foreign Exchange Trade System. The yuan's gain this year is almost twice as fast as the 3.4 percent pace in 2006. The currency appreciated more than 12 percent since July 2005 against the dollar.

Elsewhere, China Railway Group Ltd, the world's third-largest construction company, rose 1.60 percent, or 0.16 yuan, to 10.13 yuan. The company may win a 40 billion yuan contract to build the high-speed rail link between Beijing and Shanghai, Oriental Daily News reported.

China Petroleum & Chemical Corp, Asia's biggest oil refiner, also known as Sinopec, dipped 0.09 percent, or 0.02 yuan, to close the session at 23.02 yuan. The company said it has discovered gas at a field in northern China that has proven reserves of 43.4 billion cubic meters.