China's benchmark indexes logged small gains Friday, as data from the emerging market show a fast-growing robust economy — with fast-rising inflation.

The Hang Seng index, Hong Kong's benchmark, rose 1.2% with higher volume than that seen the prior session. But the index closed near the bottom of the day's trading range.

The Shanghai composite rose 0.3%, although volume fell. Like the Hang Seng, the Shanghai gauge closed near the day's low.

Consumer inflation in China leapt an annualized 3.1% in May, the government said. That gain topped Beijing's 3% tolerance point.

Even more alarming, producer prices swelled 7.1%.

These two inflation gauges logged their biggest one-month gains in 19 months and 20 months, respectively.

But industrial output rose just 16.5% in May, compared with one year earlier. That's slower than the 17.8% year-over-year gain seen in April, but still robust.

Meanwhile, bank lending fell 17%, month to month, to $93.6 billion.

The government has been trying to cool off what many say is a property-market bubble.

But the central bank's efforts so far — restricting access to credit and raising banks' reserve requirements — have not stopped the housing juggernaut.

A report Wednesday said that property prices in 70 Chinese cities rose 12.4% in May, year over year. That higher-than-expected surge was second only to April's 12.8% gain.

Taken together, this puts policymakers in a bit of a bind.

Inflation is clearly a problem, which seems to demand tighter monetary policy. But industrial growth already is slowing, although the No. 1 target, the real estate market, is still bubbling.

Of course, the People's Bank of China would much rather cool the real estate frenzy sooner, and gentler, than have it violently implode later.

Can the central bank raise rates and further tighten credit without damaging China's growth?

Remember, economic strength is Beijing's top priority. It must deliver millions of new jobs each year just to absorb the nation's fast-growing labor pool.

Meanwhile, the Shanghai composite on Wednesday notched a follow-through, soaring 2.8% in solidly higher volume.

The Hang Seng made a similar but more moderate move on June 3, when it climbed 1.6% in higher volume.

But the U.S. market is still in a correction. Many of the best-rated Chinese ADRs are forming sloppy bases with more distribution than you'd want to see.

Sourced from www.investors.com