China stocks recouped earlier losses to end higher on Tuesday, but investors turned cautious amid a strong rally in blue-chips after MSCI decided last weeek to add 222 China-listed stocks to its Emerging Markets Index.
The blue-chip CSI300 index rose 0.2 percent, to 3,674.72 points, while the Shanghai Composite Index also added 0.2 percent to 3,191.20 points.
Investors largely looked past news that profits at China's industrial companies surged 16.7 percent in May from a year earlier, accelerating from April despite expectations of a slowdown.
With the blue-chip index trading at the highest level since early 2016, some investors aren't sure if the index can run up much further amid signs Beijing will continue to keep liquidity conditions relatively tight.
Citing "relatively high" liquidity levels in the banking system, China's central bank on Tuesday skipped open market operations for a third consecutive day, as short-term borrowing rates have eased recently.
"The central bank doesn't want the market to form expectations of loose liquidity," Wang Gang, strategist at Huajin Securities, wrote.
"In the future, liquidly will remain relatively tight. Under such a backdrop ... there's limited room for blue-chips to rise further."
Wang said investors were also bracing for the mid-year earnings season starting next week to reassess their portfolios.
Sector performance was mixed.
Gains were led by bank stocks, while real estate stocks dragged behind after jumping nearly 9 percent during the previous two sessions.
