Domestic stocks rose for a third day today, powered by insurers 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 1.15 percent, or 58.24 points, to close at 5,101.78 at 3pm today.

 

The index edged up 9.91 points this week as it opened at 5,007.29 at 9:30am on Monday.

 

Gainers in the Shanghai market outnumbered losers 671 to 84 while 91 were unchanged.

 

The Shenzhen Composite Index, which covers the smaller mainland stock market, gained 1.36 percent, or 18.5 points, to 1,375.89.

 

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.

 

Different from the five previous rate increases, the central bank lowered by 0.09 percent the interest rate for demand deposits - those that can be withdrawn at any time - to encourage savers to tie up their cash for longer periods rather than having it readily available to shift into shares or property.

 

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 2.23 percent, or 1.28 yuan (17 US cents), to 58.60 yuan. Ping An Insurance, the second biggest, rose 2.68 percent, or 2.82 yuan, to 108.20 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, recovered from morning session's 1.34 percent loss and fell 0.28 percent, or 0.08 yuan, to 28.30 yuan in the afternoon while Gemdale Corp, a Chinese developer that is allied with ING Groep NV, shed 1.94 percent, or 0.79 yuan, to 40 yuan.

 

Air China Ltd, the world's biggest airline by market value, was among rising carriers on expectation a strengthening local currency will lower the costs of their foreign debt.

 

Air China, the world's biggest airline by market value, jumped 3.71 percent, or 0.93 yuan, to 25.99 yuan while China Eastern, the nation's third-largest carrier, added 2.18 percent, or 0.40 yuan, to 18.73 yuan. China Southern, the nation's biggest carrier, climbed 4.77 percent, or 1.21 yuan, to finish at 26.56 yuan.

 

The yuan advanced as much as 0.2 percent to 7.3550 per dollar in Shanghai today, the highest since China ended a fixed peg to the dollar in 2005. A stronger yuan cuts the cost of airlines' dollar denominated debt.

 

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, inched up 0.30 percent, or 0.07 yuan, to close at 23.11 yuan. The company said it has discovered gas at a field in northern China that has proven reserves of 43.4 billion cubic meters.

 

(Shanghai Daily December 21, 2007)