China Shares End Flat; Inflation Concerns Trim US Debt Pact Gains

SHANGHAI (Dow Jones)--China's shares ended flat with an upward bias Monday as investors reacted with cautious optimism following a deal to raise the U.S. debt ceiling, while macroeconomic indicators continued to show signs of economic vulnerability, which weighed on gains.

The benchmark Shanghai Composite Index, which tracks both A and B shares, rose 2.05 points to end 0.1% higher at 2703.78. The Shenzhen Composite Index rose 0.5% to 1183.98. Analysts said the Shanghai index faces resistance at 2750.

"The announcement of an agreement on the U.S. debt issue this morning certainly has had some positive effect on A shares," said Gold State Securities analyst Huang Bin.

Investors appeared relatively unperturbed by two sets of manufacturing data, which showed China's economy continued to slow in July.

The country's official Purchasing Managers Index released by the China Federation of Logistics and Purchasing fell to 50.7 in July from 50.9 in June, its fourth consecutive decline.

The HSBC China Manufacturing PMI fell to 49.3 in July from 50.1 in June. For both PMIs, a reading below 50 indicates a contraction of manufacturing activity.

Analysts said that while the PMI data were weak, their effect on the day's trade was limited.

"The PMI data came within market expectations. It's worries about inflation that are pushing stocks lower," said Jacky Zhang, an analyst at Capital Securities.

In a report published Monday, Credit Suisse said 64% of respondents to a survey expected inflation to continue to rise in China in August. China's consumer price index rose to a three-year high of 6.4% in June. July CPI data is scheduled to be issued next week.

Among the day's gainers were real estate stocks, which rebounded from recent weakness. China Vanke ended 1.7% higher at CNY8.29, while Poly Real Estate gained 2.1% to CNY10.69.

While the wider market finished higher, banking stocks performed weakly following strong gains Friday. China Citic Bank Corp. ended 3.2% lower at CNY4.54 after rising 7.8% on Friday. Analysts said a recent rights issue was not a major factor in Monday's fall.

Industrial & Commercial Bank of China fell 0.2% to CNY4.24 and Shanghai Pudong Development Bank shed 0.9% to CNY9.32.

The August 2011 index futures contract, the most actively traded of the four index futures contracts traded in China, ended up 0.1% at 2987.8.

The futures are referenced to the CSI-300, an index of 300 Shanghai- and Shenzhen-listed yuan-denominated A shares. The CSI-300 ended 0.2% higher at 2977.72.

-By Andrew Galbraith, Dow Jones Newswires; 8621 6120-1200; andrew.galbraith@dowjones.com