China's stocks advanced, driving the benchmark index to a two-month high, as a cash crunch eased and investors bought shares of companies whose earnings benefit from rising prices.
Liquor maker Kweichow Moutai Co led an advance for consumer-staples producers after January inflation unexpectedly rebounded to 4.5 percent during the Spring Festival holiday on accelerating food prices.
Ledman Optoelectronic Co jumped 3.4 percent after benchmark money-market rates fell, signaling improving liquidity. China Vanke Co paced a two-day rally for property developers. Jiangxi Copper Co slid 2 percent.
"The Spring Festival effect boosted January inflation and it's a one-off rebound," said Dai Ming, a fund manager at Shanghai Kingsun Investment Management & Consulting Co.
"Prices will come down in the following months. But the central bank will be reluctant to relax monetary policies since the inflation rate is still perceived as high."
The Shanghai Composite Index rose 2.06 points, or 0.1 percent, to 2349.59 at the close, the highest since Dec 2. About two stocks advanced for every one that declined. The CSI 300 Index gained less than 0.1 percent to 2529.23. The Bloomberg China-US 55 Index, the measure of the most-traded US-listed Chinese companies, added 1.6 percent on Wednesday in New York.
The Shanghai index has rebounded 6.8 percent this year on speculation the central bank will further cut lenders' reserve- requirement ratios to spur growth. It announced a cut in reserve ratios on Nov 30, the first reduction since 2008, after boosting them and interest rates last year to cool inflation that accelerated to its fastest pace in three years in July.
Reserve-ratio cuts may be postponed after inflation jumped last month, Market News International reported, citing unidentified government officials and economists.
The January inflation rate compared with the median 4 percent estimate in a Bloomberg News survey of 33 economists and 4.1 percent in December. Producer-price inflation eased to 0.7 percent from a year earlier after a 1.7 percent gain in December, the statistics bureau said on Thursday.
A measure of consumer staples stocks in the CSI 300 advanced 0.4 percent. Kweichow Moutai, China's biggest producer of liquor by market value, rose 1.3 percent to 190.75 yuan ($30.27). Zhejiang Beingmate Scientific-Industrial-Trade Share Co, a producer of milk powder for babies, climbed 2.4 percent to 24.11 yuan.
"Most investors and traders know January inflation readings were significantly distorted by the Lunar New Year holiday," Lu Ting, a Hong Kong-based economist at Bank of America Corp, wrote in a report on Thursday. Inflation may slow to below 4 percent this month, Wang Tao, an economist at UBS AG, said in an interview with Bloomberg on Thursday.