Given a strong earnings outlook, Shanghai stocks may regain some ground after suffering a major drop last week, analysts said.

But they cautioned buying interest could remain weak as investors await key monthly economic data due for release this week, fearing further tightening measures.

The benchmark Shanghai Composite Index tumbled 5.55 percent last week to 5,180.51, the first weekly drop in five, although the barometer recovered slightly by 0.56 percent on Friday to end a three-day drop.

"Last week's decline is a bit unexpected. But Friday's rebound may not be sustainable given a sharp drop in turnover that day which indicates a weak sentiment," said Yi Xiaobin, a China Galaxy Securities analyst. "Still, a correction is always necessary before further gains can be made."

Qian Qimin, a Shenyin Wanguo Securities analyst, said rosy earnings could well support the index and market confidence should come back after a correction.

On Friday, lenders rose after the Industrial & Commercial Bank of China and China Construction Bank reported strong earnings forecasts, helping the index close higher.

China Galaxy forecasts the index may move between 5,100 and 5,300 this week. Shenyin Wanguo gives a range from 5,130 to 5,400 while Orient Securities says it may be between 4,900 and 5,200.

Analysts said many investors may choose to stay away from the market ahead of the release of key December economic data by the National Bureau of Statistics this week.

But Southwest Securities analyst Zhang Gang said the central bank's first reserve ratio rise for this year, announced last week, could ease concerns over any immediate macro tightening measures being imposed.

The People's Bank of China last Wednesday said it would raise the bank reserve ratio by half a percentage point to 15 percent, effective from Friday, to cool lending and investment amid a high inflation rate.

Analysts also said the focus this week will be on firms with stakes in small start-ups after the stock market regulator said last week it plans to launch the Growth Enterprise Board, a Nasdaq-like market.

(Shanghai Daily January 21, 2008)