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After 3 Days of Gains, China Stocks Still Near 6-Month Lows

Cheng Lei|Reporter, CNBC Asia Pacific
Thursday, 19 Jul 2012 | 11:29 AM ET

The Chinese market has gained for three consecutive sessions, despite the fact that the benchmark index is still trading near six-month lows.

Christian Kober | Robert Harding World Imagery | Getty Images

The benchmark Shanghai Composite Index ended off its intra-day highs at 2184.84 on Thursday, up 0.73 percent. Strength in financial shares, such as insurers and brokerages, bolstered the market.

Market Factors:

The People's Bank of China offered 80 billion yuan ($12.5 billion) of reverse repurchase agreements in its open market operations Thursday, raising expectations of an upcoming cut in reserve requirement ratio. In recent months, however, the central bank has surprised the market with the timing of its easing moves.

Despite trading near historically low valuations, investors have shunned the Chinese banking sector due to bad debt fears. Beijing's two recent rate cuts also involved adjustments to lending and deposit rates that are expected to squeeze banks' interest rate margins and hurt their profitability.

The state-run Shanghai Securities News said on Thursday that China's big four state banks doubled their pace of lending in the first half of July from a month ealier, although Chinese banks' total new lending in the month is expected to fall by about a third to 650 billion yuan ($102 billion).

Stocks to Watch:

Insurer Stocks - China's insurance regulatory commission has issued updated bond investment rules for insurers. Chinese insurers are allowed to invest in hybrid and convertible bonds, and their ceiling for investment in unsecured bonds has been lifted to 50 percent of total assets from 20 percent. Other measures, such as allowing insurers to conduct margin trading and invest more overseas, are expected to be announced shortly.

Hisense - China's leading TV maker says first-half earnings rose 11 percent to 575 million yuan ($90 million). Domestic revenues fell 7 percent, but exports surged 42 percent.

Citic Securities, Haitong Securities - Citic Securities, China's largest listed brokerage, has issued preliminary first-half earnings showing a drop of 24 percent to 2.2 billion yuan ($345 million). Revenue was down 23 percent as trading turnover fell in the Chinese stock market. Haitong, the second largest broker, said profit fell 9 percent to 2 billion yuan ($314 million).

China State Construction - China's largest construction firm has won six major projects worth 41.4 billion yuan ($6.5 billion), equivalent to 8.6 percent of 2011 revenues. They include residential and commercial projects in China, as well as a water resources project in Kenya.

Coming Up This Week:

FRIDAY: Indian Foreign-Exchange Reserves

—By Cheng Lei, Special to CNBC.com; Reuters contributed to this report