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China shares hit record high as earnings overcome reserve rate hike

China shares hit record high as earnings overcome reserve rate hike

Chinese stocks hit a fresh high Monday as strong corporate earnings overcame the impact of the latest reserve requirement ratio hike.
The benchmark Shanghai Composite Index ended up 2.2 percent at 3,841.27, its highest-ever close. The Shenzhen Composite Index rose 1.6 percent to 1,064.77, also a record closing high.
The market is closed the rest of the week for the Labor Day holiday, but may continue to climb after the break, with the Shanghai index likely to test the 4,000 level by mid-May, analysts said. The market reopens May 8.
"Sentiment is stable, as the latest reserve requirement ratio reduces the possibility of a near-term interest rate hike," said Tao Zhifeng, an analyst at CSC International Holdings.
On Sunday, China's central bank said it will raise the amount of money banks must hold in reserve for the fourth time this year, reducing the amount available for lending in a new effort to cool an investment boom Beijing worries could spark a financial crisis.
The half percentage point increase, which brings the level to 11 percent for most commercial banks, takes effect May 15.
Banks ended lower, with Shanghai Pudong Development Bank down 2.2 percent at 26.90 yuan and Hua Xia Bank down 1.0 percent at 13.33 yuan. Citic Bank slid 9.1 percent to 10.34 yuan after surging 96 yuan on its trading debut Friday.
"The reserve ratio hike may slow the loan growth of banks and will have some adverse impact on the earnings of smaller banks," said Su Xiaobo, an analyst at Zhongyuan Securities.
Companies that reported strong first-quarter earnings ended higher Monday. Anhui Conch Cement gained 2.9 percent to 40.48 yuan after the company said its first-quarter net profit rose 36 percent from the same period last year on an increase in capacity and stable sales growth.
In currency dealings, the yuan rose sharply against the U.S. dollar late Monday afternoon, mainly because the local forex market will be closed for a week, delaying settlement by seven days, traders said.
Traders said the dollar/yuan spot rate was traded more like a forwards instrument, and several traders said they expected the rate to rise above 7.71 after the holiday. Financial markets reopen May 8.
On the over-the-counter market, the dollar was quoted at 7.7046/7.7049 yuan at 0715 GMT, down from Friday's last quote of 7.7137/7.7140 yuan.