Chinese stocks edge up as economy stays on growth track

Some upbeat economic data helped Chinese stocks stabilize Tuesday after plunging into bear-market territory on Monday.

The Shanghai composite index closed up 15.98 points, or 0.6%, to 2,683.72 after swinging multiple times between gains and losses.

From Bloomberg News:

China?s manufacturing expanded at the fastest pace in 16 months in August, driven by record lending in the first half of the year, two surveys showed.

The Purchasing Managers' index rose to a seasonally adjusted 54 from 53.3 in July, the Federation of Logistics and Purchasing said in an e-mailed statement in Beijing. A PMI released by HSBC Holdings Plc also climbed.

Gains in output, orders and jobs added to evidence that Premier Wen Jiabao can meet his 8% growth target for the year as a stimulus package counters falling exports.

?China?s equity market has taken a battering in the past few weeks, but the economic data suggests that the recovery remains on track,? said Brian Jackson, a strategist at Royal Bank of Canada in Hong Kong. ?Beijing still faces the difficult task of managing liquidity conditions to avoid a bubble or a bust.?

The market has been hit by fears that the government's efforts to rein-in bank lending will slow the economy to a crawl, or worse. The Shanghai share index tumbled 6.7% on Monday, leaving it down 23.2% from its summer high reached Aug. 4. By Western standards a drop of 20% is considered a new bear market.

On Wall Street, the concern is that if China's expansion stalls out it could signal the same for Western economies.

But the August purchasing managers' index showed signs of strength across the board, which at least appeared to discourage a heavy new wave of selling in Shanghai to follow Monday's drop.

From Bloomberg:

The output index rose to 57.9 from 57.3 in July. The measure of new orders climbed to 56.3 from 55.5. An export-order index was unchanged at 52.1. An employment index gained to 51.4 from 50.8. Readings above 50 indicate expansions.

?This clearly shows that we are in a broad-based economic recovery,? said Sun Mingchun, chief China economist at Nomura Holdings Inc. in Hong Kong. The gain in jobs was ?very encouraging, as it shows that firms are confident enough to increase hiring, which will also help boost consumption for the rest of the year,? he said.

-- Tom Petruno

Photo: The Shanghai World Financial Center tower. Credit: Eugene Hoshiko / Associated Press