China stocks end up 0.7 pct at 1-month closing high

SHANGHAI, July 26 (Reuters) - China's key stock index rose for a sixth day on a row on Monday, climbing 0.7 percent to its highest close in a month, boosted by expectations of looser economic policies this year and stronger overseas markets.

Large gains in small cap companies such as TianJin Quanyechang Group (600821.SS) led Monday's rise.

The Shanghai Composite Index .SSEC closed at 2,588.7 points, extending a 6.1 percent gain the previous week that was the index's biggest weekly rise since December.

Tighter liquidity conditions in the market and a raft of measures to cool the red-hot property sector had knocked nearly 30 percent from the Shanghai stock market's benchmark this year before the recent rebound.

"This afternoon's gains were due to improved sentiment. Investors are anticipating more relaxed policies in the second half of this year," said Xu Yinhui, analyst at Guotai Junan Securities in Shanghai.

Xu said senior officials including Premier Wen Jiabao and President Hu Jintao are disclosing more information on policy measures for the rest of the year, which is reassuring investors.

"In the medium term it may be possible for the index to reach 2,800 points, providing the outlook for economic growth remains steady," he said.

Railway stocks rose on reports that China would accelerate railway spending in the second half of the year, while Tianjin-based companies jumped after the city's government said it planned to invest 200 billion yuan ($29.5 billion) to build a world-class finance center.

China Railway Group (601390.SS) gained 2.0 percent.

Volume slipped to 88 billion yuan ($12.98 billion) from Friday's 101 billion yuan. Turnover picked up significantly last week, which analysts said could point to further stock market gains if the higher volume is sustained.

Gaining Shanghai shares outnumbered losers 744 to 116. ($1=6.780 Yuan) (Reporting by Farah Master; Editing by Edmund Klamann)