SHANGHAI stocks advanced to a three-month high today, led up by property developers and financials, as investors turned away from small caps and flocked to blue chips.

The benchmark Shanghai Composite Index rose 1.23 percent to 2,321.32 points, the biggest close since March 25. Turnover was 120.4 billion yuan (US$19.7 billion) today.

"Blue-chip stocks are bolstered by funds flowing from small-cap stocks that have been overvalued after gains last week," Xiangcai Securities said in a weekly report.

The price-to-earnings ratio of Shanghai-Shenzhen CSI 300 Index, a gauge of performance of blue chips traded on the Shanghai and Shenzhen exchanges, is about 10 times while the PE ratio of medium- and small-capital stocks is 25 times, data from Dongxing Securities showed.

Property developers led the market up. Poly Real Estate, China's second-largest developer, rose 3.3 percent to 12.64 yuan. Gemdale Corporation gained 4.4 percent to 8.06 yuan.

"The government intension to expand the property tax trial hinted that China is planning to regulate the housing market and make it more market-oriented. This will help boost the valuation of property stocks," CITIC Securities said in a report.

The National Development and Reform Commission said last week that China is considering expanding the property tax trial to more cities by taking "concrete measures" this year.

Haitong Securities increased 4.8 percent to 12.02 yuan after its executives pledged at a stockholders' meeting yesterday to transform business and boost profitability.

Founder Securities surged 7.1 percent to 7.87 yuan. CITIC Securities, China's biggest listed broker, increased 3 percent to 13.25 yuan.