Chinese equities gained 1.88 percent Tuesday as investors bet that the central bank might cut interest rates, following the release of consumer and producer price figures for February that indicated deflation pressure, dealers said.

The benchmark Shanghai Composite Index rose 39.82 points to 2,158.57. The Shenzhen Component Index was up 1.24 percent, or 98.87 points, to 8,045.66.

Gains outnumbered losses 817 to 59 in Shanghai and 688 to 58 in Shenzhen.

Combined turnover shrank sharply to 106.53 billion yuan (15.57 billion U.S. dollars), from 158.1 billion yuan on the previous trading day.

Wu Kongyin, an analyst with Guangdong-based Lianhe Securities, said the shrinking turnover showed that investors were cautious ahead of further data releases this week including fixed-asset investment (Wednesday) and retail sales (Thursday).

The National Bureau of Statistics said the consumer price index fell 1.6 percent year-on-year in February, the first monthly decrease since December 2002.

The producer price index fell for a third straight month, dropping 4.5 percent year-on-year, but it was 1.2 percentage points higher than the month-earlier level and better than investors forecast, showing signs of an industrial recovery, dealers said.

Stocks fell 3.39 percent Monday on concerns about weak February data, and the Shanghai Composite Index opened 1.02 percent lower Tuesday. But prices rebounded during the afternoon as investors concluded that rate cuts were possible.

Wang Qing, chief analyst for the Chinese economy with Morgan Stanley Asia, forecast Tuesday that the central bank might cut interest rates by 27 basis points within this month.

Leading shipper COSCO rose by the daily 10-percent limit to 10.76 yuan. The Greek parliament last week approved COSCO to run facilities at the main port of Piraeus. The deal with COSCO was signed in November.

Vanke, the largest real estate developer by market value, slid 1percent to 7.81 yuan. It announced Tuesday that its 2008 net profits dropped 16.7 percent to 4.03 billion yuan.

Source: Xinhua