SHANGHAI stocks rose yesterday after China's central bank announced a cut in the reserve requirement ratio for commercial banks.

The Shanghai Composite Index added 0.27 percent to close at 2,363.6 points.

The People's Bank of China last Saturday announced a 0.5 percentage point cut in the reserve requirement ratio to be effective on Friday, the first cut this year. The ratio for large banks will then be 20.5 percent. The central bank had cut the ratio in December after it was raised 12 times since January 2010 due to tight monetary polices.

"The PBOC's cut signals that the reserve ratio is entering a downward cycle," said Lian Ping, chief economist of the Bank of Communications.

He predicted the PBOC may institute another cut in the ratio next month.

"If the growth in foreign exchange capital obtained through yuan funds continues to slow in February and new loans decline, the ratio will be cut again in March," Lian said.

Saying that the cut "will pump about 400 billion yuan into the system," Aijian Securities recommended investors raise their holdings in blue chips.

Oil refiners, property developers, and cement firms rose on speculation that the improved liquidity would bolster the country's economic growth, further extending the key index's five-week winning streak.

PetroChina rose 1.08 percent to 10.29 yuan. Poly Real Estate Group, China's second-largest listed developer, gained 0.6 percent to 10.77 yuan. Anhui Conch Cement Co, China's largest cement producer, added 0.94 percent to 17.21 yuan.