SHANGHAI stocks edged up yesterday, driving the benchmark index to a two-month high, despite the higher-than-expected Consumer Price Index in China in January.

The Shanghai Composite index gained 0.09 percent to close at 2,349.59, the highest since December 2.

The CPI, the main gauge of inflation, rose 4.5 percent from a year earlier last month, the National Bureau of Statistics said on its website yesterday. Inflation rebounded for the first time in six months as the week-long Lunar New Year holiday sparked spending and food prices rose.

"Surging food prices contributed to the CPI's rebound in January. February's reading is expected to drop below 4 percent," said Ba Shusong, a senior economist at the State Council's Development Research Center.

Liu Qiang, analyst at Guosen Securities, said: "Most analysts expected the CPI in January to be as low as December's 4.1 percent, but it's much higher than expected. Market expectations for an easing in monetary policy have been dampened on the soaring (inflation) figure."

However, China's the Producer Price Inflation fell to 0.7 percent from December's 1.7 percent, the lowest level in 26 months.

Lenders were mixed. The Industrial and Commercial Bank of China added 0.2 percent to 4.42 yuan (US$0.70), and the Bank of China rose 0.33 percent to 3.05 yuan. But the Bank of Communications slid 1 percent to 5.03 yuan.

Property developers continued to rally after the central bank pledged to meet demand of first-home buyers seeking loans, and to support the construction of affordable housing.

Poly Real Estate Group, China's second-largest listed developer, surged 1.3 percent to 10.56 yuan, and Xi'an Gree Real Estate soared 2 percent to 5.49 yuan.

But Hu Shijie, an analyst at Orient Securities, advised against holding shares of developers for the long term. "The property curbs are unlikely to be loosened in 2012," he said yesterday.