Stocks see biggest two-month rally on back of stimulus buzz

An investor looks through stock information at a brokerage house in Haikou, Hainan province, Jan 19, 2016. [Asianewsphoto by Shi Yan]

Chinese stocks on Tuesday rallied with the biggest gain in two months as the weaker-than-expected economic data sparked fresh expectation for further government stimulus policies.

The benchmark Shanghai Composite Index gained 3.22 percent to close at 3007.74 points. The Shenzhen Component Index jumped by 3.41 percent while the start-up index ChiNext rose by 3.07 percent.

The stock rally came despite that China's economic growth decelerated to 6.9 percent last year, down from 7.3 percent in 2014 to the lowest level in 25 years, according to data released by the National Bureau of Statistics.

"The soft activity data, the domestic market selloff and unsettled global financial markets require macro policies to stay accommodative for an extended period, in our view," Chang Jian, chief China economist at Barkley's Capital, said in a research note.

China's industrial output slowed by 6.1 percent last year to the weakest level since the financial crisis while fixed-asset investment contrasted sharply by 10 percent, according to the official data.

The weak economic data has sparked investors' anticipation for further monetary easing including both interest rate cuts and reduction of banks' reserve requirement ratio accommodate a slower economy.

The service sector appeared to be a bright spot, contributing more than a half of the total GDP growth, or 50.5 percent, for the first time in history.

"We believe consumption growth will remain a bright spot, given Chinese middle-class consumption upgrading, although it is likely to moderate as wage growth and household income slow along with the rest of the economy," Chang said.