China's stocks rose, sending the benchmark index to the highest in two months, after the central bank said it will keep a "moderately loose" monetary policy and steelmakers rallied on improving earnings prospects.

Anhui Conch Cement Co led gains for cement makers after Citic Securities Co raised its recommendation on the industry. Baoshan Iron & Steel Co, the listed unit of China's second-biggest steelmaker climbed to a two-month high after spot prices jumped 6.9 percent from last week.

"Loosening tightening policies by the government is a big possibility in the second half," said Larry Wan, Beijing-based head of investment at Union Life Asset Management Co, which oversees the equivalent of $2.21 billion. "The market is also turning optimistic about third- and fourth-quarter corporate earnings after some good numbers from interim results."

The Shanghai Composite Index, which tracks the bigger of China's stock exchanges, climbed 14.45, or 0.6 percent, to 2,648.12 at the 3 pm close, the highest since May 28. The CSI 300 Index rose 0.5 percent to 2,877.58, led by material stocks.

The Shanghai index has rebounded 12 percent from this year's low set on July 5 on expectations the government will ease property curbs and allow more lending to offset a slowdown in economic growth. Still, the measure is down 19 percent in 2010 on concern measures to control real-estate speculation and accelerating inflation will damp earnings.

People's Bank of China Deputy Governor Ma Delun said the nation will maintain a moderately loose monetary policy in the second half of this year, the Financial News reported.

China will also maintain the stability and continuity of monetary policy in the second half, Ma was cited as saying during a meeting in Shanghai.

"Sentiment, which is mainly behind the rally, is still strong, as corporate earnings are good and the government's tightening policies have entered a quiet 'observation' period," said Li Jun, a strategist at Central China Securities Holdings Co in Shanghai.

Anhui Conch, China's biggest cement maker, gained 3.3 percent to 20.22 yuan. Gansu Qilianshan Cement Group Co surged 4.5 percent to 16.12 yuan. Huaxin Cement Co added 1.1 percent to 18.65 yuan.

China's cement industry was raised to "overweight" by Citic analyst Pan Jianping, who cited construction of low-income housing and government-backed industry mergers in a report on Thursday.