SHANGHAI stocks inched up yesterday as investors adopted a cautious stance after producer prices in China fell for a 16th consecutive month.

The Shanghai Composite Index added 7.18 points, or 0.37 percent, to 1,965.45.

"The market see-sawed with a shrinking trading volume" amid a cautious sentiment, said Qilu Securities. Donghai Securities attributed the gain by the market on an easing in the liquidity crunch.

China's Consumer Price Index in June rose 2.7 percent year on year, accelerating from 2.1 percent in May and recording the fastest pace since February, the National Bureau of Statistics said yesterday.

Meanwhile China's Producer Price Index, a major gauge of inflation at the wholesale level, fell 2.7 percent last month from a year earlier, the 16th straight month it has fallen.

Li Huiyong, an analyst with Shenyin and Wanguo Securities, attributed the gain in inflation to rising food prices and a low comparative base. He added that "the figure pointed to relatively high deflationary in the manufacturing sector due to dismal demand amid sluggish economy."

Gansu Qilianshan Cement Group Co gained the most among cement producers, rising 6.1 percent to 8.29 yuan as cement price rebounded slightly last week. China Petroleum & Chemical Corp jumped 4.6 percent to 4.33 yuan.

Poly Real Estate, China's second-largest developer, fell 2.8 percent to 10.12 yuan and Gemdale Corp shed slumped 4.4 percent to 6.79 yuan.