SHANGHAI stocks advanced today as data showed China's non-manufacturing activity improved for a fourth straight month in January, adding to signs the world's second largest economy is recovering.

The Shanghai Composite Index gained 0.38 percent to 2,428.15 points, the highest close since May. Daily turnover was 152.5 billion yuan (US$24.6 billion).

The China Service Purchasing Managers Index, a gauge of business activity in non-manufacturing sectors, rose in January to 56.2 from 56.1 in December, the China Federation of Logistics and Purchasing reported over the weekend.

A reading above 50 signals activity is expanding.

"The rising figure reflected the potential of domestic consumption," said Cai Jin, vice chairman of CFLP. "The sub-index of new orders received by the building sector rose to a record high, indicating investment in infrastructure will continue to grow."

Analysts are upbeat about the market outlook. Shen Minggao, chief economist of greater China at Citi Bank expects the Shanghai Composite Index to rise in the first half of this year to around 2,780 points as companies are likely to post better-than-expected earnings.

Coal producers led today's gains. Shanxi Lanhua Sci-Tech Venture Co advanced 4.3 percent to 22.99 yuan. Shanxi Lu'an Environmental Energy Development Co surged 7.7 percent to 24.73 yuan. Yang Quan Coal Industry (Group) Co rose 3.9 percent to 16.57 yuan.

Most cement producers also advanced. Anhui Conch Cement Co, the country's biggest cement producer, added 1.5 percent to 21.10 yuan. Gansu Qilianshan Cement Group Co increased 1.7 percent to close at 12.23 yuan.