SHANGHAI, May 17 (Reuters) - China shares closed at more than two-month highs on Monday, as sustained gains in consumer and healthcare stocks outweighed concerns over the country reporting soft economic data.
The blue-chip CSI300 index rose 1.5%, to 5,184.99, its highest closing level since March 5, while the Shanghai Composite Index added 0.8% to 3,517.62, strongest closing level since March 3.
Growth in output from China's factories slowed in April and retail sales significantly missed expectations as officials warned of new problems affecting the recovery in the world's second-largest economy.
Leading the gains, the CSI300 consumer staples index and the CSI300 healthcare index climbed 2.4% and 2.3%, respectively, following a 2.1% and 2.4% gain the previous session.
"Higher PPI could usually lead to higher CPI, resulting in price hikes in consumer products," said Xia Tian, managing director at Shanghai-based asset management firm Minvest in a wechat post.
"Investors in May and June could pay close attention to small and medium-sized consumer stocks with solid earnings, in particular consumer companies with price hikes and benefiting from summer consumption," Xia added.
However worries over inflation have started to emerge, limiting gains in the market.
China H Materials (MSAPCHMT Index) is the best performing sector, up 22% year-to-date on the back of the reflation trade, rising commodity prices and Chinese environmental restrictions, Morgan Stanley noted in a report.
However, with April PPI coming in at 6.8% y/y and expected to shoot up to 8% in the next few months, the government is clearly concerned about inflation risks, MS added.
China said on Wednesday it would monitor changes in overseas and domestic markets and effectively cope with a fast increase in commodity prices.
Analysts also argued that the market would remain rangebound, citing a lack of drivers for a continued rally and marginally decreased liquidity as Beijing maintains a cautious policy stance.