SHANGHAI stocks advanced today, with the key index climbing back to above the 2,000 level, as lenders recovered on an eased liquidity squeeze while logistics and trade firms got a boost from the central government's approval to set up a free trade zone in Shanghai.

The benchmark Shanghai Composite Index rose 11.83 points, or 0.59 percent, to 2,006.10. Daily turnover was 82.7 billion yuan (US$13.6 billion).

"The cash crunch, the largest negative for the market in June, has been easing and the liquidity risk has been priced in during the previous fall," said Liu Yi, analyst with Huatai Securities.

The seven-day repurchase rate, a gauge of interbank funding cost, fell 30.40 basis points to a normal level of 3.94 percent in Shanghai today, a 10th straight day of decline, as the central bank refrained from withdrawing money from the market for a second week.

Industrial Bank Co rose 1.2 percent to 9.13 yuan. Shanghai Pudong Development Bank Co advanced 1 percent to 8.12 yuan. Bank of Communications added 1.8 percent to 4.07 yuan.

The State Council, China's Cabinet, yesterday approved the plan to establish a free trade zone on a trial basis in Shanghai, according to a statement made after a meeting chaired by Premier Li Keqiang.

"The trail zone will be a pioneer in boosting trade facilitation and promoting service trade, a step to push forward economic transitions in China," Orient Securities said in a report.

Market watchers said the free trade zone will not only benefit the city's trading industry but also boost its financial and shipping sectors.

Shanghai Material Trading Co surged by the daily limit of 10 percent to 4.69 yuan. Shanghai International Port (Group) Co jumped 6.3 percent to 2.72 yuan. CTS International Logistics Corp Ltd jumped 10 percent to 5.62 yuan.