Shanghai - Stocks on the Chinese mainland rose, extending last week's rally, as European debt concerns receded and consumer staples producers rallied on speculation their earnings can better withstand the nation's tighter monetary policies.

China Shenhua Energy Co climbed to the highest level this month after September sales jumped. Ping An Insurance Group Co surged to a three-week high after the company reported a 32 percent gain in premium income. Kweichow Moutai Co rose 3 percent after UBS AG recommended consumer staples producers.

"The European debt problem is easing to some extent and Chinese inflation may keep dropping in October," said Wu Kan, a fund manager at Dazhong Insurance Co, which oversees $285 million. "Monetary policy will probably become easier as the government shifts to maintaining economic growth from controlling rising prices."

The Shanghai Composite Index gained 9 points, or 0.4 percent, to 2440.40 at the close, extending a 3.1 percent advance from last week. The CSI 300 Index added 0.5 percent to 2666.95. Stock markets advanced across Asia Monday after Group of 20 finance chiefs meeting in Paris endorsed parts of a plan to contain Europe's debt crisis.

The Shanghai index has tumbled 13 percent this year, driving down estimated price earnings to 11.2 times, compared with the record low of 10.8 times set on Oct 10, according to data compiled by Bloomberg. China has raised interest rates three times in 2011 and ordered lenders to set aside a bigger portion of their deposits to curb inflation that's near a three year high.

A gauge of consumer staples producers in the CSI 300 surged 1.9 percent, the most among the 10 industry groups.

The CSI 300 may rally to 3300 over the next 12 months, as low valuations lure investors and the government signals the end of monetary tightening, according to Manop Sangiambut, CLSA Asia-Pacific Markets' head of China A-share research.

"I am on the positive side of Chinese stocks, mainly because of valuations and because we're at the tail end of tightening policies," Sangiambut said in an interview in Shanghai on Monday. He favors Chinese brokerages, machinery companies and coal producers.

China's stocks fell on Oct 14, paring the biggest weekly gain since August, after a report on inflation signaled the government won't loosen its tightening policies. Gross domestic product increased 9.3 percent in the third quarter, from a year earlier, according to the median estimate of 22 economists in a Bloomberg News survey. That would be the ninth straight quarter of expansion above 9 percent and follow a 9.5 percent gain in the previous three months.

Chinese stocks will extend recent rallies as inflation may have peaked and excessive pessimism and capitulation may signal a bottom for equity markets, according to China International Capital Corp.

The slumping money supply growth figure is an "incomplete measure" given the "continued disintermediation" of the banking system, Hao Hong, CICC's Beijing-based global equity strategist, said in a report to clients. "If we include the growth in financial management products, interbank deposits, non-financial companies' reserve deposits, and forex deposits in the calculation of monetary aggregate, money supply growth has indeed been well over 20 percent in recent months."

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