Chinese stocks rose for a third day, the longest winning streak in five weeks, as gains among drug and liquor companies overshadowed declines by financial shares.

Yunnan Baiyao Group Co., which makes traditional Chinese medicine, jumped to a record high on optimism regulators will take steps to support the industry. Kweichow Moutai Co., the nation's largest liquor maker, climbed to a one-month high on speculation product prices have bottomed. Industrial Bank Co. slid 2.3 percent, leading financial companies to the biggest loss among industry groups.

About three stocks gained for each one that fell in the Shanghai Composite Index, which added 0.6 percent to 2,006.56 at the close. The gauge has slumped 18 percent from this year's high on Feb. 6 as record money market rates fueled concern that higher capital costs will curb economic growth. The one-day repurchase rate fell for an eighth day today to a one-month low on speculation the central bank used targeted injections to ease the cash squeeze.

“Stocks fell too much in June so we will see some technical rebound in the first half of July as panic selling has eased,” said Zeng Xianzhao at Everbright Securities Co. in Chongqing. “The upside is limited and short-lived. There's concern about the economy deteriorating. Also investors worry a relief of the credit crunch is only temporary.”

Eoin Treacy's view The sectors most heavily exposed to the process of deleveraging enforced by the PBOC and the slowdown in China's primary export markets have tended to be those with the largest market caps. This has had a negative impact on wider market indices such as the CSI 300 and Shanghai Composite both of which tested areas of previous support last week and are now bouncing.

The Shenzhen B Shares Index is more focused on the consumer sector generally and has no banks. The Index pulled back sharply from its May peak to test the region of the 200-day MA, where it bounced emphatically last week. A sustained move below 115 would now be required to question medium-term potential for additional upside.

The performance of the healthcare sector is also noteworthy since this is likely to continue to be one of the main beneficiaries of China's urbanisation agenda. The Index bounced emphatically from the region of the 200-day MA last week and is following through this week. The Atlantis China Healthcare fund's reaction has so far been shallower than the sector's.

The Hong Kong listed db-trackers CSI Healthcare ETF has underperformed but broke out of a yearlong base in January and found support last week in the region of the upper boundary. It has bounced emphatically and a sustained move below HK$12 would be required to question medium-term recovery potential.

Hong Kong listed Tong Ren Tang found at least short-term support last week in the region of the 200-day MA and the benefit of the doubt can continue to be given to the upside provided it continues to hold above the HK$21 area.