The booth of Inner Mongolia Yili Industrial Group Co at an expo in Shanghai. The dairy producer added 3.8 percent to 17.29 yuan ($2.98) on Friday, its highest close since June 10.[Photo / China Daily]

Shanghai - Most stocks on the Chinese mainland rose on Friday, capping a second week of gains for the benchmark index. The advance came on speculation the government will refrain from raising interest rates after manufacturing expanded at the slowest pace since February 2009.

Poly Real Estate Group Co led an advance for developers on the prospect that China won't intensify housing curbs as home prices eased in major cities. Inner Mongolia Yili Industrial Group Co, the nation's biggest dairy producer, climbed to a three-week high as China raised its income tax threshold. Industrial & Commercial Bank of China Ltd (ICBC) slid 1.8 percent on concern over industry loans to local government financing vehicles. The Purchasing Managers' Index was at 50.9 in June, below estimates.

"The PMI manufacturing data shows the economy is really slowing and that leads to expectations that the government will relax its current tightening policies," said Li Jun, a strategist at Central China Securities Co in Shanghai. "Amid the slowdown in growth, I am cautious about the market."

The Shanghai Composite Index, which tracks the bigger of China's stock exchanges, fell 2.71 points to 2759.36 at its close.

About five stocks rose for every three that dropped on the gauge.

It has risen 0.5 percent this week. The CSI 300 Index added 0.2 percent to 3049.75. Hong Kong's stock market was closed on Friday for a holiday.

The Shanghai measure slumped 5.7 percent last quarter, the first drop since the three months ended June last year, on concern tightening measures will slow the economy. China's central bank has raised reserve requirements 12 times and rates four times since the start of 2010.

The stocks gauge has rebounded 4.4 percent over the past two weeks after Premier Wen Jiabao said that efforts to stem inflation have worked, and the government allowed debt sales to accelerate construction of affordable housing.

The index is valued at 12.7 times estimated earnings, compared with the average of 18.9 times over the past five years, according to data compiled by Bloomberg.

Poly Real Estate rose 2.2 percent to 11.23 yuan ($1.73). China Vanke Co gained 2.7 percent to 8.68 yuan. China Merchants Property Development Co gained 2.7 percent to 18.80 yuan.

Home prices in cities including Beijing and Shanghai either posted slower gains or declines from May, SouFun Holdings Ltd said in a statement on Friday. The increase in nationwide home prices slowed to 0.4 percent last month from 0.5 percent in May, the 10th straight month of gains, according to the nation's largest real-estate website owner.

The PMI dropped from 52 in May, said the China Federation of Logistics and Purchasing. The forecast in a Bloomberg News survey of 13 economists was 51.5. A reading above 50 indicates expansion.

Pressure for additional monetary tightening may be easing after manufacturers' input prices rose at the slowest pace since July 2010 in the logistics federation study. The People's Bank of China has paused for 12 weeks in raising benchmark interest rates, the longest gap since increases began in October.

Bloomberg News