China's key index surges as investors snapped up stocks

China's key stock index surged Monday as investors snapped up stocks, relieved that the government had not announced further moves over the weekend to cool the economy.

China stock markets have taken less than two weeks to rebound from a rout that erased more than $400 billion of market value.

The Shanghai Composite index, which tracks the bigger of China's stock exchanges, gained 2.9 percent to 4253.35. The Shenzhen Composite index, which covers the smaller one, rose 2.8 percent to 1257.75.

"The government didn't raise interest rates over the weekend, and that's bolstering sentiment," said Yao Maogong, head trader at Shanghai Securities.

Prime Minister Wen Jiabao last week said monetary policy needed "moderate tightening," after reports showed that inflation was at a two-year high and money-supply growth exceeded the central bank's target.

The CSI 300, which tracks yuan-denominated A shares listed on China's two exchanges, climbed 128.19, or 3.1 percent, to close at 4227.57, with about 90 percent of the shares included in the measure advancing.

The CSI 300 is also the top performer of the past year, having tripled in that time.

"Investors keep buying shares as a rumored clampdown involving measures such as interest-rate increases failed to materialize over the weekend," said Chen Shide, who manages the equivalent of $212 million, or $28 million, at GF Fund Management in Guangzhou. "It can't be ruled out that the government will still take action."

The CSI 300 plunged as much as 22 percent from the May 29 close of 4168.29 after the government tripled the tax on securities trades. It took about a month to recoup a single-day loss of 9.2 percent on Feb. 27, the biggest slide since the gauge was introduced in April 2005.

Investor interest has waned little since the stamp duty was tripled to 0.3 percent.

About 250,000 new securities accounts were opened daily last week, compared with the quarter's average of some 300,000, official figures show.

Merchants Bank has the biggest weighting in the CSI 300, Industrial & Commercial Bank of China, the nation's No. 1 lender, and Bank of China, the second biggest, were among the best performers.

But the three stocks may fare less well Tuesday after the lenders were named by China's banking regulator as being among six banks under investigation for granting loans to China Shipping that were used to finance illegal speculation in the stock and property markets.

In addition, China's securities regulator summoned managers and chief investment officers of 57 mutual funds last week, telling them to refrain from speculating on market rumors for short-term gains, China Business News reported Monday.

The People's Bank of China has raised interest rates twice this year to rein in industrial expansion and tame inflation, with both announcements made over weekends. It has also ordered commercial banks five times to set aside more money as reserves to curb lending.

Even so, bank savings rates trail inflation, helping steer funds into stocks.

Household deposits fell by 278.4 billion yuan in May, after sliding in April for the first time since February 2003. Commercial banks' deposit rates are capped at the central bank's one-year deposit rate of 3.06 percent, less than the 3.4 percent inflation rate.

China's banking regulator, the China Banking Regulatory Commission, said in a statement on its Web site (www.cbrc.gov.cn) that it had uncovered cases of irregularities amounting to about 5 billion yuan during an investigation that was initiated early this year.

The bank branches involved belonged to Bank of Communications , China Merchants Bank, Industrial and Commercial Bank of China, Bank of China, Industrial Bank, China C Bank, Bank of Beijing and Shenzhen Development Bank, it said.

The punishments included fines and demotions of bank employees, the regulator said.

The penalties come amid government efforts to improve regulation of the country's state-owned banks and enforce credit controls meant to cool twin booms in real estate and stock market speculation.

Two state companies that received the loans, China Nuclear Engineering & Construction and China Shipping, also are to be penalized, the CBRC said.

Meanwhile, the China Securities Regulatory Commission said it would review on Friday applications from Bank of Nanjing and Bank of Ningbo to open initial public equity offers.

The regulator made the announcement on its Web site (www.csrc.gov.cn) on Monday, putting the Nanjing and Ningbo banks on track to become the country's first city commercial banks to float shares.