Stocks post first weekly gain on MSCI index talk

Mainland stocks posted their first weekly gain in almost two months, as speculation MSCI Inc will include yuan-denominated shares in its global indexes was tempered by concern over the slowing economy and falling yuan.

The Shanghai Composite Index rose 0.5 percent at the close, taking its weekly gain to 4.2 percent. A rally on Tuesday spurred by Goldman Sachs Group Inc comments that MSCI inclusion was likely to be announced this month has fizzled out as the yuan neared a five-year low.

Manufacturing data for May released on Wednesday failed to ease concern about the outlook for the world's second-largest economy, after April figures trailed estimates.

There's a growing risk that capital outflows from China may accelerate as the yuan weakens, spilling over into global markets and causing a broad selloff similar to those in January and August, Goldman said Thursday.

"There is still skepticism about whether the rally can continue as we haven't seen a change of fundamentals, either from the macro economy or earnings," said Wei Wei, an analyst at Huaxi Securities Co in Shanghai.

"Investors are on the sidelines. The impact of a weaker yuan could be fairly limited as stocks are already at a pretty low level."

The Shanghai Composite Index, which has lost 17 percent this year, closed at 2,938.68.

The Hang Seng China Enterprises Index advanced 0.6 percent in Hong Kong, extending its gain for the week to 2.5 percent. The Hang Seng Index rose for the eighth time in nine days, increasing 0.4 percent as Link REIT and Lenovo Group Ltd climbed.

A gauge of consumer-staples shares on the CSI 300 Index climbed 3.2 percent to its highest level this year, while the measure of energy stocks fell 0.1 percent.

Liquor maker Kweichow Moutai Co jumped 6 percent to a record high and Jiangsu Yanghe Brewery Joint-Stock Co added 4.4 percent, while coal producer Shanxi Lu'an Environmental Energy Development Co lost 1.1 percent.

The yuan weakened less than 0.1 percent against the dollar on Friday and was poised for a fifth weekly decline, the longest streak since December, amid mounting expectations the Federal Reserve will raise interest rates by July.

China's strategy of keeping the yuan steady against a basket of currencies while downplaying the significance of the exchange rate versus the dollar may not succeed in stemming capital outflows, because it's the exchange rate against the greenback that households and companies are most sensitive to, Goldman strategists said.