SHANGHAI, May 25 (Reuters) - Chinese shares saw a strong rally on Tuesday, with the blue-chip index posting its best day in nearly 11 months, as fears around inflation at home and abroad faded, and a stronger yuan helped boost foreign inflows into the A-share market.
** The blue-chip CSI300 index ended 3.2% higher at 5,318.48, marking its highest level since March 8 and the best session since July 6, 2020. The Shanghai Composite Index added 2.4% to 3,581.34.
** Leading the gains, the CSI300 consumer staples index and the CSI300 financials index advanced 4.5% and 3.9%, respectively.
** "The market rally has been mainly driven by financials. It's a rebound for insurance and securities firms after their losses this year," said Niu Chunbao, chairman at Wanji Asset, a Shanghai-based private securities fund.
** Analysts and traders also attributed the rally to easing inflation worries and a stronger yuan.
** The gains in commodities prices have been basically contained, decreasing the worries over inflation and its transmission, said Yan Jinkui, an analyst with Caida Securities.
** Beijing has vowed to maintain stability in the country's commodities markets after prices rallied earlier this year.
** Inflation fears also faded overseas. The U.S. national activity index reading of 0.24 against expectations above 1, along with dovish comments from Federal Reserve speakers, supported the view that loose policy will remain on hold for some time.
** Yuan strength helped increase the appeal of Chinese equities.
** China's yuan jumped to a near three-year high against a weaker dollar, although investors are now gauging the central bank's tolerance for a firmer currency before chasing new highs.
** Investors purchased 24.8 billion yuan ($3.87 billion) net worth of A-shares via the Stock Connect linking the mainland and Hong Kong, bringing the daily northbound inflows to a new record, according to Refinitiv data.
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