(Bloomberg) -- China’s beaten down stocks posted their best gains in weeks on news local governments will have more room to spend on infrastructure, offsetting U.S. President Donald Trump’s latest threat of more tariffs.

The Shanghai Composite Index climbed 2.6%, the most since May 10, though it’s still down around 10% in the past two months. Construction-related stocks rallied after the finance ministry said Monday it would ease restrictions on the spending of proceeds from special bond sales and encourage banks to offer loans to projects funded by such debt. The yuan rose after the central bank set the daily reference rate stronger than expected.

After an explosive start to the year, Chinese stocks were derailed by an escalation in the trade dispute with the U.S. The Shanghai Composite went from one of the world’s best performers to among the worst, while the small-cap ChiNext Index fell into a bear market last week. Faced with a meltdown in stocks and slowing economy, the Chinese government has sought to shore up sentiment through stimulus measures, without adding to the nation’s debt burden.

“Lower restrictions in the use of special bond sales by local governments is giving the market, particularly in infrastructure-related sectors, some support,” said Gerry Alfonso, director of international business department at Shenwan Hongyuan Group Co. “Food and agricultural names also rallied with the outlook remaining strong in that space.”

Alfonso said investors are likely focusing on more granular issues at the moment, given that major developments are unlikely to happen in U.S.-China trade relations until the Group of 20 meeting later this month. Trump said that tariffs on Chinese goods could be raised if President Xi Jinping doesn’t meet him at the summit in Japan.

China Railway Group Ltd. was one of the standout stocks Tuesday, rising as much as 8.3% in Hong Kong, the most since July 2018. China National Building Material Co. advanced 8% and Anhui Conch Cement Co. rallied 5%. China International Capital Corp. and Hong Kong Exchanges & Clearing Ltd. gained on news Alibaba Group Holding Ltd. picked two investment banks to lead its share offering in the city. The Hang Seng Index rose 1% as of 2:18 p.m. local time.

On the mainland, the CSI 300 Index surged 3% and the tech-heavy ChiNext measure added 3.6%, both heading for their biggest daily gains in a month. The yuan was up 0.21% at 6.9159 per dollar.

To contact Bloomberg News staff for this story: Livia Yap in Singapore at lyap14@bloomberg.net;Amanda Wang in Shanghai at twang234@bloomberg.net

To contact the editors responsible for this story: Sofia Horta e Costa at shortaecosta@bloomberg.net, Will Davies, Philip Glamann

©2019 Bloomberg L.P.