The market mood was brightened after decision by Chinese authorities to back special-purpose bond issuances by local governments. The finance ministry said on late Monday that special bonds sold by local governments will be allowed to bankroll construction of key projects and financial institutions will be encourage to provide additional funding. The move is an effort to accelerate financing of major projects through the bond issuances, which are used largely for infrastructure investment, including highways, gas and power supply and railways, which would help prop up a slowing economy.
Investors, meanwhile, appeared to ignore a continued rumble of hostile rhetoric from the U.S. and China over trade. China's foreign ministry on Tuesday said it would respond firmly if the U.S. insisted on escalating trade tensions, after U.S. President Donald Trump on Monday said further tariffs on Chinese imports would take effect if the two countries don't reach a deal at a meeting of Group of 20 leaders later this month.
Chinese officials, however have not confirmed that President Xi will meet with president Trump at the meeting, to be held June 28-29. President Trump said Monday that if Xi doesn't meet with him, additional tariffs will be placed on Chinese goods.
Construction-related stocks rallied after the finance ministry said on Monday it would ease restrictions on the spending of proceeds from special bond sales and encourage banks to offer loans to projects funded by such debt. Beijing Orient Landscape & Environment jumped by the 10% daily limit to 5.80 yuan and China Railway Construction advanced 6.7% to 10.16 yuan. China Communications Construction climbed 5.2% to 11.50 yuan.
Liquor distillers also gained on sign that overseas traders resumed purchases of Chinese stocks. Wuliangye Yibin surged 8.5% to 108.95 yuan and Shanxi Xinghuacun Fen Wine Factory added 6.8% to 59.88 yuan.
CURRENCY NEWS: China yuan rose against greenback on Tuesday, after the central bank set the daily reference rate stronger than expected and the central bank's plan to issue bills in Hong Kong later this month. Prior to market opening, the People's Bank of China (PBOC) set the midpoint rate at 6.8930 per dollar, 5 pips weaker than the previous fix of 6.8925. The official midpoint was 157 pips stronger than market expectation of 6.9087 per dollar. In the spot market, the yuan opened at 6.9175 per dollar and was unchanged at midday, 130 pips firmer than the previous late session close.
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