Mainland stocks climb most in a week

Chinese mainland stocks rose, sending the benchmark index to its biggest advance in a week, as developers and industrial companies gained on the central bank's second interest-rate cut in a month, overshadowing losses by banks.

The Shanghai Composite Index climbed 1 percent to 2,223.58 at the close, after slumping as much as 0.7 percent. The index changed direction at least 10 times as trading volume was 27 percent higher than the 10-day average. A gauge of property companies rallied 3.5 percent, the most among the five groups, followed by industrial companies.

"In the morning, there was still panic, as the rate cuts exemplified concerns the economy may be worse off," said Zhou Lin, an analyst at Huatai Securities Co. "This is a worry that's been going on in everyone's mind. In the afternoon, investors started to calm down and think things are not that bad."

China Vanke Co and Sany Heavy Industry Co climbed more than 3 percent as Citigroup Inc said liberalizing lending rates will boost capital-intensive companies. Industrial & Commercial Bank of China Ltd dropped 1 percent as Barclays Plc said the rate reductions may cut lenders' average net income by as much as 54 percent next year.

The People's Bank of China on Thursday lowered the benchmark one-year lending rate by 0.31 percentage point and one-year deposit rate by 0.25 percentage point, effective on Friday. The rate cut comes before data next week that may show the economy grew at the slowest quarterly pace since 2009.

The Shanghai index slipped 0.1 percent this week, capping a third week of losses. The PBOC cut was followed by the European Central Bank which reduced its main rate by 25 basis points to a record low of 0.75 percent, and said it will no longer pay anything on overnight deposits as sovereign debt turmoil threatens to drive the 17-nation euro economy into recession.

"The lending rate liberalization implies lower cost of capital, and capital intensive sectors should gain from the policy move," Citigroup said, referring to property, infrastructure, capital goods, utility and transportation.

Defensive stocks

Investors should get defensive and move out of stocks that are most tied to economic growth, said Hao Hong, head of Chinese research at Bank of Communications Co in Hong Kong.

Economists surveyed by Bloomberg expect China's economy to have grown 7.8 percent in the second quarter, the slowest pace since 2009. The GDP data is scheduled to be released on July 13. UBS AG said there are downside risks to its economic growth forecasts for China. June economic data will show second-quarter growth of below 7 percent quarter-on-quarter and 7.6 percent year-on-year, the lowest since the first quarter of 2009, Tao Wang, an economist at UBS, said in an earlier report.