Nov. 4 (Bloomberg) -- China’s stocks rose for a fourth day, driving the benchmark index to the longest winning stretch in two months, as raw-material producers advanced on higher commodity prices.

Zhongjin Gold Corp. and Shandong Gold Mining Co., the top producers of the metal, climbed at least 1.8 percent after gold rose to a record. Jiangxi Copper Co. gained 1.5 percent. Poly Real Estate Group Co., the country’s second-largest developer by market value, lost 2.5 percent after the Shanghai Securities News said Bank of Communications Ltd. has ordered its branches to tighten rules on second mortgages.

“The economy still has a pretty optimistic outlook next year probably with high growth rate and low inflation,” said Zhang Ling, who helps oversee about $7.21 billion at ICBC Credit Suisse Asset Management Co. in Beijing. “But at the same time, you need to guard against shrinking liquidity as the government puts a lid on credit.”

The Shanghai Composite Index rose 14.31, or 0.5 percent, to 3,128.54 at the close, after changing direction at least six times. The four-day gain is the longest since Sept. 9.

The gauge has rallied 72 percent this year as Premier Wen Jiabao’s stimulus package and record lending drove China’s economic rebound. The CSI 300 Index, measuring exchanges in Shanghai and Shenzhen, advanced 0.5 percent to 3,453.89.

The World Bank raised China’s economic growth forecast for this year to 8.4 percent from 7.2 percent and said the central bank will “eventually” have to rein in credit to avert asset bubbles.

Gold Producers

Zhongjin Gold, the country’s second-largest bullion producer, rose 1.8 percent to 59.34 yuan. Shandong Gold, the No. 3, climbed 2.1 percent to 69.79 yuan. Jiangxi Copper, China’s biggest producer of the metal, added 1.5 percent to 40.30 yuan.

Gold futures for December delivery rose to a record $1,088.50 an ounce in after-hours trading in New York. Earlier, the contract settled 2.9 percent higher at $1,084.90, the biggest gain since March 19. Copper added 0.4 percent.

China’s stocks may extend this year’s rally as valuations are undemanding given the acceleration in the nation’s economic recovery, according to Haitong Securities Co., the country’s second-biggest brokerage.

Stocks trade on the Shanghai index at 33.2 times reported earnings, down from a 52 multiple two years ago, according to data compiled by Bloomberg. Chinese investors opened 297,196 accounts to trade the nation’s stocks in the five days ended Oct. 30, an 11 percent increase from the preceding week, according to data from the nation’s clearing house.

Buffett’s Deal

Rail stocks gained after Warren Buffett’s Berkshire Hathaway Inc. bought a U.S. railroad in its largest acquisition.

Daqin Railway Co., the operator of China’s biggest coal transport network, advanced 4.3 percent to 10.44 yuan, the most since Aug. 10. The stock trades at 20.5 times earnings. Guangshen Railway Co., the operator of trains in China’s richest province, climbed 2.5 percent to 4.49 yuan, extending its annual advance to 21 percent.

“Buffett’s investment provided the trigger for a new look at the industry,” said Zheng Wu, an analyst at Ping An Securities Co. in Shenzhen, who has a “buy” rating on Daqin Railway. “Given the economic recovery, we think railway stocks like Daqin Railway are undervalued.”

Poly Real Estate dropped 2.5 percent to 26.21 yuan. China Vanke Co., the nation’s biggest listed property developer, slid 1.6 percent to 11.75 yuan. Gemdale Corp., the No. 4, lost 1 percent to 15.62 yuan.

BoCom now applies tighter lending conditions to a family’s second mortgages, instead of for individual borrowers, Shanghai Securities News reported today, citing unidentified bank executives. Previously, a couple could borrow two home loans separately with favorable terms intended to encourage first mortgages, it said.

Gradual Withdrawal

Concern that China will restrain stimulus measures too early dragged on the nation’s stocks last quarter, when a decline in new loans in July sent the benchmark index tumbling 22 percent in August. The gauge is still down 9.9 percent from this year’s peak on Aug. 4.

“Even if the stimulus is going to be withdrawn, it’s going to be withdrawn in a very gradual way,” John Praveen, chief investment strategist at a unit of Prudential Financial Inc., which manages about $580 billion of assets. “China’s rally until now has been driven by liquidity, and the next phase of the rally is likely to be driven by earnings recovery and solid GDP growth.”

Praveen expects China stocks to increase 20 percent to 25 percent next year.

The following companies were among the most active in China’s markets. Stock symbols are in brackets after companies’ names.

Changjiang Securities Co. (000783 CH), gained 4.1 percent to 20.81 yuan after saying it plans to raise 3.3 billion yuan in a rights offer. The company will offer three shares for every 10 held at a price of 6.50 yuan each, it said.

Guangdong Electric Power Development Co. (000539 CH), the biggest operator of power plant in the southern Chinese province bordering Hong Kong, added 1.3 percent to 8.68 yuan. The company said it plans to buy a 51 percent stake in Zhanjiang Zhongyue Energy Co. from its controlling shareholder for 734 million yuan.

Jingwei Textile Machinery Co. (000666 CH) fell 9.9 percent to 6.41 yuan. The company said it could not reach an agreement on a proposed acquisition of a Chinese company and will not resume negotiations in 2009.

Shanghai Siyuan Electric Co. (002028 CH), a manufacturer of power equipment, gained 2.1 percent to 25.77 yuan, the highest since January 2008. A wholly owned unit made a profit of 45.25 million yuan from selling shares in Henan Pinggao Electric Co. from Sept. 8 to Nov. 2, Siyuan Electric said in a statement.

--Zhang Shidong. With assistance from Chua Kong Ho in Shanghai. Editors: Linus Chua, Richard Frost

To contact Bloomberg News staff for this story: Zhang Shidong in Shanghai at +86-21-6104-7014 or szhang5@bloomberg.net

Last Updated: November 4, 2009 03:02 EST