CHINA’S stocks closed sharply higher yesterday after the central bank caught markets off guard by cutting benchmark lending rates Friday to shore up the cooling economy.

    The benchmark Shanghai Composite Index gained 1.85 percent to 2,532.88, its highest level since 2011, while the Shenzhen Composite Index was 1.32 percent higher at 1,377.79.

    The People’s Bank of China cut one-year benchmark lending rates by 40 basis points to 5.6 percent late of Friday, taking by surprise market participants who had predicted more covert policy easing measures such as liquidity injections.

    The first rate cut in more than two years reflects a change of course for the government and the central bank, which had persisted with modest stimulus measures before finally deciding last week that a bold monetary policy step was required to stabilize China’s economy.

    Growth slowed to 7.3 percent in the third quarter and policymakers feared it was on the verge of dipping below 7 percent, a rate not seen since the global financial crisis.

    “Policymakers are taking a very comprehensive look in their toolboxes and this should keep investor demand for yield intact,” said Tai Hui, chief markets strategist at JP Morgan Asset Management in Hong Kong.

    Gains in property and brokerage stocks led the benchmark indices in Hong Kong and on the mainland higher as investors anticipated a cut in mortgage rates.

    Analysts at Macquarie expects mortgage rates to fall 100 basis points below what they were in the September quarter, a quantum that led to a rally in these counters in late 2012.

    Banking shares opened lower on worries that the rate cut would squeeze interest rate margins, but they had rebounded by market close on views that lower borrowing costs would help ease worries about nonperforming loans, analysts said. (SD-Agencies)