BEIJING - Stocks on the Chinese mainland rose for a second day, with the benchmark index capping its first back-to-back advance in a month, as investors speculated that recent declines had been overdone.

SAIC Motor Corp, China's largest car producer, paced gains for the sector after the People's Daily reported that the government would boost spending on rural road construction.

Sany Heavy Industry Co, the maker of construction equipment, added 1.1 percent. Chongqing Iron Steel Co fell 1.7 percent after the steelmaker said it might post a "substantial" loss this year.

"Low valuations and anticipation of policy easing have enticed some buying interest," said Wang Zheng, Shanghai-based chief investment officer at Jingxi Investment Management Co, which manages about $120 million. "The trend on the broader market hasn't changed with economic growth still slowing."

The Shanghai Composite Index rose 0.2 percent to 2173.56, adding to Wednesday's 0.2 percent gain.

The gauge closed at the lowest level since March 2009 on Tuesday. The CSI 300 Index added 0.2 percent to 2311.36.

The Bloomberg China-US 55 Index, the measure of the most-traded US-listed Chinese companies, retreated 0.8 percent on Wednesday in New York.

The central bank may cut banks' reserve requirements after New Year's Day, according to a commentary in the China Securities Journal on Thursday. Reserve ratios were last cut by 50 basis points to 21 percent with effect from Dec 5.

The central bank raised interest rates three times this year to cool inflation, while exports to Europe slowed because of the debt crisis.

The Shanghai Composite has fallen 6.9 percent in December, taking the year-to-date drop to 23 percent.

The 14-day relative strength measure for the Shanghai Composite, which measures how rapidly prices advanced or dropped during a specified period, was at 29.8 on Wednesday. Readings below 30 indicate to some traders that stocks could be poised to rise.

SAIC Motor advanced 4.1 percent to 13.88 yuan ($2.19). FAW Car Co, which makes passenger cars in China with Volkswagen AG, jumped 7.9 percent to 8.45 yuan, trimming its loss to 47 percent this year.

Anhui Jianghuai Automobile Co, a unit of China's biggest light-truck exporter, added 2.5 percent to 5.68 yuan.

China will invest more than 200 billion yuan in rural road construction in the five years through 2015, the People's Daily reported, without citing anyone. The investment will be more than the total of the previous five-year period, it said.

Sany Heavy gained 1.1 percent to 12.39 yuan. Guangxi Liugong Machinery Co, a Chinese maker of construction equipment, advanced 0.8 percent to 11.67 yuan.

Companies in the Shanghai Composite traded at a record-low 10.41 times on Dec 22, the biggest discount to the ratio for the MSCI AC World Index since April 13, 2006, according to data compiled by Bloomberg.

"The growth outlook is pretty bleak next year as the government won't increase money supply aggressively or introduce a huge stimulus plan because inflation is still at a pretty high level," said Zhang Qi, an analyst in Shanghai at Haitong Securities Co.

GDP growth will slow to 8.5 percent in 2012, the lowest in 11 years, according to the Organization for Economic Cooperation and Development. China's money supply expanded 12.7 percent in November, the smallest monthly change in a decade.

Chongqing Steel retreated 1.7 percent to 2.89 yuan. The steelmaker said it might post a loss this year, citing a downturn in demand for steel products as well as higher raw material prices and operating costs.

Baoshan Iron Steel Co, the listed unit of China's second-biggest steelmaker, dropped 1.2 percent to 4.85 yuan. Hebei Iron Steel Co, the listed unit of the second-largest, lost 0.7 percent to 2.84 yuan.

Suning Universal Co plunged the 10 percent daily limit to 5.39 yuan. The China Securities Regulatory Commission is investigating the property developer for suspected violations of information disclosure requirements, the company said in a statement.

The benchmark money-market rate surged the most in three months as banks hoarded cash to meet year-end capital requirements and customer withdrawals ahead of the Lunar New Year on Jan 23.

The seven-day repurchase rate, which measures interbank funding availability, rose the most since Sept 27, according to a weighted average rate compiled by the National Interbank Funding Center.

The People's Bank of China suspended a three-month bill sale for the first time since June and also didn't offer 91-day repos on Thursday, according to a trader at a primary dealer required to bid at auctions, who wouldn't be identified because of central bank restrictions.

Bloomberg News

(China Daily 12/30/2011 page16)