Shanghai Stock Index Tops 2,900

SHANGHAI, China - Chinese stocks surged in heavy buying of auto and steel companies Monday, as the key Shanghai Composite Index topped 2,900 for first time.

By midday, the Shanghai benchmark index was up 2.7 percent to 2,908.77. The smaller Shenzhen Composite Index gained 3.2 percent to 693.69.

Auto companies rallied on expectations of strong growth given China's newly gained status as the world's second-biggest auto market. Early in the session, Anhui Ankai Automobile hit the upward limit of 10 percent at 4.37 yuan; CNHTC Jinan Truck jumped 9.9 percent to 28.5 yuan.

Laiwu Steel Corp., meanwhile, rose up to 4 percent Monday on news that its parent and world leader Arcelor Mittal Steel have agreed to extend a deadline for the global giant to take a stake in the mid-sized Chinese mill.

Laiwu's state-owned parent company Laiwu Steel Corp. agreed in February 2006 to sell a 38.41 percent stake to Arcelor Mittal for 1.8 billion yuan ($230 million). The deal has not yet received regulatory approval, the company said in a statement to the Shanghai Stock Exchange.

Retailers were also big gainers Monday on expectations for strong sales during the Chinese New Year, which falls in mid-February this year.

Yinchuan Xinhua Department Store hit the upside limit of 10 percent at 14.20 yuan, while Guangzhou Friendship also jumped 10 percent to 23.98 yuan.

Apart from the strong outlook for corporate profits, investors were heartened by the outcome of a major financial meeting by top Communist Party leaders that ended during the weekend with pledges to continue to build up capital markets, analysts said.

"We can tell from that the central government's policy is to advance the stock market," said Peng Yunliang, of Shanghai Securities.

He said new accounting and tax standards which took effect at the beginning of the year were also buoying market sentiment.

Chinese share prices doubled last year as investors piled into the market following the completion of shareholding reforms that helped to reduce worries over a potential flood of shares entering the market.

Although the market has seen relatively more volatility than usual in recent weeks, traders say they expect gains to continue thanks to strong liquidity, with both domestic and international institutional investors keen to buy into China's strong economic growth.

"The market is basically stable," said Cheng Weiqing, an analyst at Citic Securities' Beijing branch. "I wouldn't read much into the rise above 2,900; it's just another number."