SHANGHAI - Stocks on the Chinese mainland rose rose to the highest level in a week on Wednesday.

They were led higher by consumer staples producers and banks, on speculation their earnings will be better sheltered from a slowdown in the world's second-biggest economy.

Kweichow Moutai Co advanced to a five-month high after Huatai United Securities Co recommended food and beverage companies. China Merchants Bank Co rebounded after falling to a two-month low this week. China Shenhua Energy Co led gains for coal producers after Citic Securities Co said demand for the fuel may exceed estimates this year.

"Consumer stocks are the best bets now amid the economic slowdown and they will offer very stable earnings growth for a long period of time," said Zhang Ling, general manager at Shanghai River Fund Management Co. "With tightening measures unlikely to be relaxed for now, the broader market is expected to trade in a range."

The Shanghai Composite Index gained 20 points to 2872.77 at the 3 pm close, the highest since May 11. Companies trade on the gauge at 13.2 times estimated profit, compared with a multiple of 19.9 over the past four years, according to weekly data compiled by Bloomberg.

The Shanghai Composite has slid 6 percent from a five-month high on April 18 amid concern government measures to cool inflation will slow corporate earnings growth.

The central bank has raised the reserve-requirement ratio for banks 11 times since the start of 2010 and boosted interest rates four times. The decline has pared this year's gain to 2.3 percent.

The Governor of China's central bank, Zhou Xiaochuan, said the bank was focused on controlling prices, without mentioning threats to growth, an indication that he has been more concerned about inflation than any risk of a growth slowdown.

The central bank will "control the monetary conditions behind excessively rapid gains in prices", Zhou said in comments dated April 18 and released on Tuesday in the central bank's annual report. The comments tally with a monetary policy report released on May 3 and prior to data showing industrial output growth weakened last month.

In April, home prices rose in 67 of 70 Chinese cities monitored by the government from last year, led by smaller cities that are defying efforts to control property prices nationwide. Housing prices increased at a faster pace in smaller cities and slowed in major ones, data posted on the statistics bureau's website showed on Wednesday.

A gauge of 19 consumer staples producers in the CSI 300 gained 1.6 percent, the most among 10 industry groups. Kweichow Moutai jumped 3.9 percent to 194.95 yuan ($30.15), the highest close since Dec 20.

Bloomberg News

(China Daily 05/19/2011 page16)