JP Morgan sees China stocks up 20 pct this year

SHANGHAI, May 16 (Reuters) - China's key stock index is expected to rise 20 percent by the end of the year with economic tightening steps likely to be delayed after this week's devastating earthquake, JPMorgan Chairman of China Equities Jing Ulrich said on Friday.

"The government is unlikely to announce new tightening measures anytime soon," said Ulrich, who expected the quake to help push inflation above 7 percent for 2008.

She added that Chinese banking stocks would benefit from a widening spread between deposit and lending rates, while rising costs of coal and crude oil would boost profits at resource firms.

But oil refiners such as Sinopec Corp (600028.SS: Quote, Profile, Research, Stock Buzz) and PetroChina (601857.SS: Quote, Profile, Research, Stock Buzz) will be squeezed by rising crude oil prices as the government is unlikely to relax restrictions on retail fuel prices this year, while low-end manufacturers will continue to suffer from rising labour and resource costs, yuan appreciation and an economic slowdown.

China's benchmark Shanghai Composite Index has .SSEC rebounded about 20 percent from a 13-month low last month after the government took measures, including a stock trading tax cut, to stabilise share prices, which had fallen by half from a record peak last October.

The index ended down 0.36 percent at 3,624.233 points on Friday.

China's consumer price inflation has remained stubbornly high, rising to 8.5 percent in April from March's 8.3 percent in data released on Monday, and holding near a 12-year peak.

The central bank quickly announced a 0.5 percentage point rise in banks' reserve requirement ratios on Monday and many traders and analysts saw the data increasing the chances of an interest rate hike next month.

Ulrich played down the chances of more aggressive macroeconomic tightening by the Chinese government, however, especially after this week's 7.9 magnitude earthquake in southwest China that is expected to have killed more than 50,000.