Domestic stocks climbed in the morning session today, shrugging off a reserve ratio increase at banks on the weekend that was intended to tighten monetary policy and cool the economy.

 

The Shanghai Composite Index, which tracks yuan-denominated A shares and hard-currency B shares, added 1.16 percent, or 59.28 points, to 5,151.04 at 11:30am today.

 

Gainers in the Shanghai market outnumbered losers 691 to 74 while 80 were unchanged.

 

The Shenzhen Composite Index, which covers the smaller mainland stock market, climbed 1.63 percent, or 21.43 points, to 1,339.99.

 

Airlines enjoyed a broad rally this morning thanks to a rising currency.

 

Air China, the world's biggest airline by market value, jumped 7.47 percent, or 1.80 yuan (24 US cents), to 25.90 yuan while China Eastern, the nation's third-largest carrier, added 8.32 percent, or 1.44 yuan, to 18.75 yuan. China Southern, the nation's biggest carrier, climbed 5.62 percent, or 1.46 yuan, to finish the session at 27.436 yuan.

 

The yuan rose 0.15 percent to 7.3920 per US dollar as of 10:40am this morning in Shanghai. It was at 7.4030 on Friday, according to the China Foreign Exchange Trade System.

 

United States Treasury Secretary Henry Paulson will make a visit to China this week. He's likely to keep up the pressure on the central government to allow the yuan to appreciate faster.

 

The airlines also rose on speculation lower crude oil prices will reduce costs.

 

Oil for January delivery was recently at US$87.80 a barrel in after-hours trading on the New York Mercantile Exchange after dropping 2.2 percent to US$88.28 on Friday. Jet fuel accounted for about 40 percent of Chinese airlines' costs in 2006, according to Beijing-based China Securities Co.

 

Aluminum Corporation of China Ltd, the nation's biggest maker of the lightweight metal, gained 7.36 percent, or 2.76 yuan, to 40.24 yuan while Baotou Aluminum Co surged the daily cap of 10 percent, or 4.93 yuan, to 54.22 yuan.

 

The two companies enjoyed the rally after the securities regulator "conditionally approved'' Aluminum Corp's merger with Baotou.

 

Aluminum Corp, also known as Chalco will make an announcement when it receives the official approval document, it said in a statement to the Hong Kong stock exchange on Friday.

 

In August, Baotou Aluminum's shareholders agreed to the company being taken over by Chalco in return for payment of 14.7 billion yuan in stock. The takeover will increase Chalco's capacity amid soaring demand in China, the world's biggest consumer and producer of aluminum.

 

Banks suffered wide losses this morning after the central bank asked banks to freeze the amount of money available for lending at its highest level for two decades to slow down the sizzling economy.

 

Shanghai Pudong Development Bank, the Chinese partner of Citigroup Inc, slid 2.55 percent, or 1.42 yuan, to 54.18 yuan while China Minsheng Banking Corp, the nation's first privately owned bank, lost 1.60 percent, or 0.25 yuan, to finish the morning session at 15.40 yuan.

 

Lenders must put aside 14.5 percent of deposits as reserves, starting December 25, up from the previous 13.5 percent, the People's Bank of China said on Saturday on its Website. The ratio is the highest since at least 1987 when data began. The increase is twice as much as nine other reserve hikes made earlier this year.

 

(Shanghai Daily December 10, 2007)