THE Shanghai stock market made its biggest gain in one and a half months after the central bank cut the banking reserve requirement ratio by 0.5 percentage point in an attempt to ease liquidity in the economy.

The Shanghai Composite Index rose 2.3 percent, the biggest rise since October 12, to close at 2,386.86 points.

Financials led the increase as the lower reserve requirement ratio, effective from next Monday, is expected to inject up to 400 billion yuan (US$63 billion) into the banking system.

The ratio cut, the first since December 2008, since when the government has raised it by 6 percentage points in 12 separate moves, will result in a decline to 21 percent for big financial institutions and 17.5 percent for smaller ones.

Galaxy Securities said: "The ratio cut signals a direction change in monetary policy, which now aims to sustain economic growth, regain investor confidence and counter the market downturn."

China Life Insurance led a surge among insurers, rising 7.9 percent, the most since July 2009, to 18.48 yuan. China Merchants Bank gained 3.9 percent to 11.65 yuan, the biggest leap among lenders.

Property developers were buoyed on speculation that cash pressure on the real estate market will ease.

Poly Real Estate, China's second-largest listed developer, climbed 5.7 percent to 9.73 yuan.

Zhou Lu, an analyst at the Bank of China International, said: "The change in ratio will strengthen developers' cash flow from house sales as more loan money will be available for first-time buyers."

Metal producers remained upbeat, rising despite China's Purchasing Managers Index for November dropping to 49 from last month's 50.4, implying a contraction of industrial activity.

Jiangxi Copper, China's biggest producer of the metal, jumped 6.1 percent to 26.36 yuan. Baoshan Iron and Steel gained 1.5 percent to close at 4.91 yuan.

Source:shanghaidaily