China on Thursday and Friday announced a spending plan worth $158 billion on setting up 60 infrastructure projects to shake the economy out of its worst slowdown in three years.
The government set out elaborate plans to build ports, highways and airport runways. The projects will be rolled out over the next several years. The government is not describing it as a stimulus package, but analysts are viewing it in that light and expect it to renew optimism i the economy.
The announcement had the effect of fuelling a rally in the local stock market which rose more than 4 percent in early trades on Friday. Investors are hoping that the rally continues as the world’s fastest growing economy has been caught in a sluggish bind for the last two years.
In the second quarter of 2012, China's economic growth fell to 7.6 percent, the lowest in three years, while economic data in recent months has pointed to a steeper slowdown in the current quarter.
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Crucial economic indicators for the month of August will be published on Sunday and economists are expecting it to report lower industrial output compared to previous months.
Policy makers in China have been cautious about spending plans and measures to stimulate the economy as they do not want to get caught by a situation of overheating as happened in 2009.
China's National Development and Reform Commission approved 25 urban rail projects, 13 highway construction projects, seven waterway projects and nine waste water treatment plans.
The coal and Steel sector got solids boost from this news with Market Vectors-Coal ETF(NYSEARCA:KOL) soared 5.40% to $23.43 and Market Vectors Steel (ETF)(NYSEARCA:SLX) rose 5.50%.
Some specific stock winners were Alpha Natural Resources, Inc.(NYSE:ANR) up 0.99 (16.75%), Peabody Energy Corporation(NYSE:BTU) 2.31 (10.79%), Arch Coal Inc(NYSE:ACI) surged +0.50 (8.20%) and Walter Energy, Inc.(NYSE:WLT) climbed 2.62 (8.20%).
In The Steel Sector, United States Steel Corporation(NYSE:X) soared 1.68 (8.75%), AK Steel Holding Corporation(NYSE:AKS) rose 0.41 (7.64%), Cliffs Natural Resources Inc(NYSE:CLF) added 5.05 (14.49%) and Steel Dynamics, Inc.(NASDAQ:STLD) gained 0.38 (3.18%).