Stocks extend gains on bullish statistics

China's stocks rose for a fifth day on Monday, the longest stretch of gains in two months, after the release of bullish data for the non-manufacturing sector.

Consumer, healthcare and technology companies led the gains, while domestic dairy companies advanced on hopes of increasing demand after China banned milk powder imports from New Zealand because of a contamination scare involving Fonterra Cooperative Group Ltd.

Shipbuilding industry companies also rose after the government released a circular drafting a development plan for the industry.

Shanghai Friendship Group Inc led the rally for retailers with gains of more than 4 percent, while dairy producer Inner Mongolia Yili Industrial Group Co rose 3.1 percent.

The CSI300 index of leading Shanghai and Shenzhen A-share companies rose 1.38 percent, closing at 2,278.3 points, the highest level since July 17.

The Shanghai Composite Index rose 1.04 percent, the highest since July 16.

Recent data showed that the economy is showing signs of stabilization in the non-manufacturing sector and indicated stronger domestic demand, analysts said. These helped boost market sentiment.

The Purchasing Managers' Index for the non-manufacturing sector rebounded after falling for three consecutive months, according to official data released on Aug 3.

The non-manufacturing PMI was at 54.1 in July, up from 53.9 in June, according to the National Bureau of Statistics and the China Federation of Logistics and Purchasing.

As industrial production is decelerating, the non-manufacturing sector may become a new driver for China's economic growth, analysts said.

"Production has been hampered by a lack of stimulus and weak export demand. Slower residential investment has weakened demand for steel, cement, glass and other industrial goods," said Alaistair Chan, an economist with Moody's Analytics.

In contrast with the disappointing performance of the industrial sector, the development of the service sector has been the bright spot this year, according to Jian Chang, an analyst with Barclays Research.

The service industry saw its added value grow 8.3 percent year-on-year in the first half, faster than GDP growth, while fixed-asset investment in the service sector is up 23.5 percent year-to-date, outpacing the 15.6 percent growth in the manufacturing sector, according to a recent report by Barclays Research.

"We expect the expansion of the pilot value-added tax reform nationwide to more industries in August to further spur services development. The reform will replace the business tax with value-added tax for many service industries, including transport," the Barclays report said.