Investors zoomed in on treasury bonds and finance stocks yesterday as China's financial circles buzzed with talk of an interest rate cut announcement as early as tomorrow. Prices of the 10-year and three-year treasury bonds issued this year rose to their highest levels since their debuts on the Shanghai and Shenzhen stock exchanges on July 12 and May 14. 'Investors expect the cut to be announced on Friday,' Shenyin & Wanguo Securities trader Zhu Guoping said. Analysts said that barring a last-minute veto by economics chief Zhu Rongji , the deposit rates could drop an average 1.5 percentage points, and lending rates by 1.2 points. China had its first interest rate cut in five years on May 1. Brokers said speculation about the rate cut was more solid this time because the official document on the cuts had already been handed down to banks. Last month, People's Bank of China governor Dai Xianglong said a second cut was imminent with lower inflation, but he did not say when. In Shanghai, expectations of the cut lifted prices of the 10-year bonds 5 per cent to 124.76 yuan (about HK$116.02) on a record turnover of 14.9 billion yuan. In Shenzhen, they climbed 4 per cent to 124 yuan on smaller turnover of 1.5 billion yuan. The three-year bonds closed three per cent higher at 117 yuan in Shanghai, and one per cent higher at 115.4 yuan in Shenzhen. Investors hunted aggressively for finance counters, which would see immediate benefits in corporate earnings when the rate cuts are announced. Led by finance stocks, the Shenzhen A-Share Index rose 4.36 per cent to 266.27 points, with turnover up nearly two-thirds to 4.3 billion yuan from 2.5 billion yuan on Tuesday. Topping the day's gains was Hongyuan Trust & Investment Co, with a 15.7 per cent rise yesterday, while Shanxi International Trust & Investment Co saw a 15.5 per cent increase. One trader at J & A Securities in Shenzhen said: 'Banks will shoulder fewer interest expenses on their deposits. ' A lower interest rate will also attract more people to lend money,' he said. Shenzhen Development Bank was the most active stock, gaining 5.2 per cent to close at 17.17 yuan, with 979.8 million yuan worth of shares traded. Shenzhen B shares rose 2.14 points, or 2.38 per cent, to 91.91 points yesterday, on a turnover of $43.76 million, up 71 per cent. With investors focusing on bonds, the Shanghai A-Share Index rose 1.34 per cent to 872 points on turnover of 2.83 billion yuan. B shares rose 1.94 per cent to 52.8 points on turnover of US$6 million. Anshan Trust and Investment Co and Shanghai AJ Corporaton led the rise in finance stocks. The former closed 8.76 per cent higher at 14.39 yuan and the latter 6.64 per cent up at 23.73 yuan. Yu Jun , general manager of Great Wall Securities Co's branch in Shenzhen, said Shenzhen's A shares staged a stronger rebound than Shanghai's on both technical and economic grounds. 'Shenzhen A shares have fallen by more than 10 per cent a week before yesterday, so there is more room for rallies. The news is more concrete this time as the entire banking system has got the information the cut is down and will come on Friday,' he said. HOPES RISE Interest rate cut expected as early as tomorrow Investors buy up on bonds and stocks Prices of treasury bonds rise to their highest level since debuts on China's stock exchanges
