SHANGHAI'S key stock index rose yesterday by the most in nearly three weeks on speculation that Italy may manage to control its debt risks, while a credit boom in October gave hope for easier monetary policies.

The Shanghai Composite Index rose 1.9 percent to 2,528.71 points, the largest daily gain since October 24.

Chinese banks extended 586.8 billion yuan (US$92.36 billion) in new loans in October, the highest in four months, the People's Bank of China said last Friday.

Analysts projected that the pace of lending would last at least until December.

Meanwhile, investor sentiment was also boosted on hopes that new government leaders in Greece and Italy may be able to tackle Europe's debt crisis, analysts said.

"Declining yields of Italy's government bond indicated that risks in the country are under control, while the size of new loans in China in October also sparked speculation that policies may be eased," said Cao Xuefeng, an analyst at Huaxi Securities. Banks rose on hopes that larger lending could boost profits.

The Industrial and Commercial Bank of China, the country's biggest lender, added 1.4 percent to 4.35 yuan (69 US cents) while China Construction Bank gained 1.7 percent to 4.86 yuan.

Coal miners and power generators rallied on speculation that China will soon raise electricity prices nationwide. A proposal to raise prices is "very likely" to be approved by the central government as inflation stabilizes, the China Securities Journal reported yesterday.

China Shenhua Energy Co, the country's largest coal producer, jumped 4.1 percent to 28.16 yuan. Anhui Hengyuan Coal Industry and Electricity Power Co surged 5.6 percent to close at 18.77 yuan.

Oil producers also firmed after prices in New York rose past US$99 a barrel. PetroChina added 0.9 percent to 10.18 yuan yesterday.