China's stocks got off to a flying start in the first week of 2011 after dropping 14 percent last year, led by the soaring share prices of banks and developers.

The Shanghai Composite Index climbed 1.1 percent last week, to 2838.80 at the close. The gauge of banks, developers and brokerages climbed 2 percent, and analysts predicted their earnings will continue to grow.

Many Chinese big fund management companies, including China Asset Management, Harvest Fund Management and E Fund Management, have raised more funds to inject into the market at the beginning of this year, indicating an optimistic outlook for Chinese stocks.

"After the year-end audit, commercial banks have returned to competitive lending in January, which will raise liquidity in stock markets, so the share price may rise in the short term," said Li Jun, a strategist at Shanghai-based Central China Securities Holding Co.

Inflation in China is expected to have fallen slightly in December, affected by a tightened monetary policy, and it will reduce the fear that investors will worry that the central bank may set aside more reserves in the first month this year, said Li.

Li also said that he favors China's energy companies in coal mining, nuclear electricity and oceanic industries in the early months of 2011.

JPMorgan Asset Management predicted that Chinese stocks will rise this year and investors should buy when faster inflation sparks rumors of further tightening measures.

As earnings increase and central banks globally keep low interest rates, "we certainly have become more positive on the cheaper markets of China", Bloomberg News cited Ayaz Ebrahim, Asia Pacific chief investment officer for HSBC Global, as saying. However, the central bank may repeatedly lift up the reserve requirement ratio to curb loan issues, said Lu Zhengwei, a senior economist at Industrial Bank.

Consumption may surge during the coming Spring Festival, the Chinese lunar new year, triggering rapid inflation in China. That will force the government to further tighten monetary policy, and "investors' optimism may stop then", Lu said.

The People's Bank of China usually takes measures to slow down market liquidity after holidays, Lu added.

A report from Guosen Securities said that the country's consumer price index may increase at a rate of more than 5 percent in the first quarter.

China's stocks performed the worst among major global equity markets last year, as the government stepped up its fight against inflation.

China's government ordered banks to hike reserves six times and boosted interested rates twice last year to curb inflation and asset bubbles after record gains in lending and property prices.