SHANGHAI: China shares closed at more than two-month highs on Monday, as sustained gains in consumer and healthcare stocks outweighed concerns over the country reporting soft economic data.

** The blue-chip CSI300 index rose 1.5%, to 5,184.99, its highest closing level since March 5, while the Shanghai Composite Index added 0.8% to 3,517.62, strongest closing level since March 3.

** Growth in output from China's factories slowed in April and retail sales significantly missed expectations as officials warned of new problems affecting the recovery in the world's second-largest economy.

** Leading the gains, the CSI300 consumer staples index and the CSI300 healthcare index climbed 2.4% and 2.3%, respectively, following a 2.1% and 2.4% gain the previous session.

** "Higher PPI could usually lead to higher CPI, resulting in price hikes in consumer products," said Xia Tian, managing director at Shanghai-based asset management firm Minvest in a wechat post.

** "Investors in May and June could pay close attention to small and medium-sized consumer stocks with solid earnings, in particular consumer companies with price hikes and benefiting from summer consumption," Xia added.

** However worries over inflation have started to emerge, limiting gains in the market.

** China H Materials (MSAPCHMT Index) is the best performing sector, up 22% year-to-date on the back of the reflation trade, rising commodity prices and Chinese environmental restrictions, Morgan Stanley noted in a report.

** However, with April PPI coming in at 6.8% y/y and expected to shoot up to 8% in the next few months, the government is clearly concerned about inflation risks, MS added.

** China said on Wednesday it would monitor changes in overseas and domestic markets and effectively cope with a fast increase in commodity prices.

** Analysts also argued that the market would remain rangebound, citing a lack of drivers for a continued rally and marginally decreased liquidity as Beijing maintains a cautious policy stance.