Mainland and Hong Kong stocks advanced on Friday, with the Shanghai benchmark topping the psychologically important 4,100 points to a decade high, as investor sentiment improved on signs of easing deflationary pressures.

In Hong Kong, the benchmark Hang Seng Index rose 82 points, or 0.32 percent, to 26,231 while the China enterprises index was up just over nine points, or 0.1 percent, at 9,048 and the tech index was up closer to nine points, or 0.15 percent, at 5,687.

The benchmark index is down 0.41 percent for the week.

The benchmark Shanghai Composite Index was up 37 points, or 0.92 percent, at 4,120 while the Shenzhen Component Index was 160 points, or 1.15 percent, up at 14,120 and the ChiNext Index, tracking China's Nasdaq-style board of growth enterprises, was up 25 points, or 0.77 percent, at 3,327.

The Shanghai Composite jumped 3.82 percent for the week to record the biggest weekly percentage rise since November 2024 while the blue-chip CSI300 index added 0.45 percent, advancing 2.79 percent ⁠for the week.

The Star Composite Index, which reflects the performance of stocks on China's sci-tech innovation board, closed 2.09 percent higher at 1,803 while the Star 50 Index, which tracks the 50 largest stocks listed on the board that also meet certain liquidity requirements, closed 1.43 percent higher at 1,475.

The gains came after China's annual consumer price inflation accelerated to a 34-month high in December, while producer deflation persisted, backing market expectations for additional stimulus to shore up soft demand.

"We remain positive on Chinese equities, partly because we expect China's efforts to balance domestic demand and supply to be supportive for the earnings outlook and to drive upward consensus earnings estimate revisions," said William Bratton, head of cash equity research for APAC at BNP Paribas Exane.

"However, given the expected sequencing of realised impacts, we have a near-term preference for sub-industries in materials, industrials, and technology over their direct consumer-facing peers."

CSI 300 Material sub-index rose 1.51 percent while the Hang Seng Material Index gained 2.29 percent.

Signs of easing trade tensions between the world's two largest economies, authorities' pledge to boost domestic demand and support the broad economy should continue to boost A shares, Zeng Wanping, ⁠investment director at Panshi Fund, said.

The overall valuation of A shares are not very high, he noted.

A firmer yuan and ample liquidity conditions also underpinned the market, analysts at Morgan Stanley said.

"We remain constructive on China on a six- to 12-months basis, considering sustained liquidity support, ongoing technological advancement and a broad set of thematic opportunities," they said.

Separately, markets will shift their focus to trade and credit lending data, due next week, for ⁠more clues into the health of the world's second largest economy. (Reuters/Xinhua)