Strong corporate earnings could drive the Shanghai stock market higher this week, analysts said, cautioning that optimism should be tempered with the possibility that further monetary policy tightening looms on the horizon.

Even so, analysts said last week's advance, accompanied by several corrections, indicates the market is moving at a rational pace.

The Shanghai Composite Index, which tracks yuan-denominated A shares and hard-currency B chips, rose 7.06 percent in the past week to close at 4,345.36. On Thursday, the benchmark finished at 4,346.46, an all-time high.

Last week's runup largely ignored the central bank's decision to raise interest rates and cut tax on interest earned from savings, signaling restored market confidence, which took a hit at the end of May when the government unexpectedly tripled the stock trading tax.

"The market did not rise too fast last week, and those small corrections were necessary for further gains," said Chen Huiqin, an analyst at Huatai Securities Co. "The market should remain confident in the mid-term on rising interim earnings results, among other factors."

Companies with handsome half-year reports, such as brokerages, led last week's gain. And on Friday, the government reported a 31.5-percent increase in first-half profit for state-owned enterprises, reaffirming market anticipation of more rosy earnings reports from the listed sector.

Analysts said the index could find solid support around 4,300.

Yang Liu, at Beijing Shoufang Investment Consulting Co, said the Shanghai Composite should fluctuate today amid some corrections and rise gradually later. Yang said investors should focus on blue chips with good fundamentals.

But reports on Friday saying the central government was determined to prevent the economy from overheating could mean more monetary tightening measures and other steps to cool the economy and the market.
"This might provide a cue for profit taking," said a strategist at Guotai Jun'an Securities Co. "Other negative issues affecting the market include an oversupply of shares, with more initial public offerings coming late this year and the launch of stock-index futures. But those are mid-term concerns."

In addition, United States investment guru Jim Rogers said last week in Shanghai that China's stock market is dangerously high but that environmental protection, water, railways and renewable-energy stocks are still worth holding, Reuters reported.