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China stocks steady as small-caps narrow losses

SHANGHAI, July 18 (Reuters) - China stocks steadied on Tuesday, aided by strong gains in cyclicals, even as investors hunted for bargains after an intense sell-off in small-caps in the previous session.

The blue-chip CSI300 index rose 0.1 percent, to 3,667.18 points, while the Shanghai Composite Index added 0.3 percent to 3,187.57 points.

The tech-heavy start-up board ChiNext gained 0.7 percent. On Monday, it tumbled 5.1 percent to its lowest since January 2015.

"The slump in major indexes on Monday was mainly driven by sharp drops in start-up shares, as they forecast continued falls in profit growth, with heavyweight start-ups leading the profit decline," Haitong Securities said in a report.

On Monday, China reported its economy grew an annual 6.9 percent in the second quarter, defying expectations for a slight loss of momentum.

The growth data helped the Shanghai SE 50 Index, dubbed China's "nifty 50", hit a two-year high on Monday, helped by the growth data.

The root cause for the divergent performances in the SE 50 and the start-up index was investors' preference for solid fundamentals in a range-bound market, Haitong Securities said.

Analysts also expect MSCI's decision to include China shares into its key emerging markets index to further reinforce investors' focus on fundamentals rather than speculative factors.

Global fund managers are ramping up their presence in China, aiming to be well ahead of next June's inclusion of mainland-listed stocks into MSCI's benchmark index that is expected to boost investment into the $8 trillion equity market.

Sector performance was mixed.

Banks lost ground, while infrastructure and the real estate sector led gains, despite data showing China's property market slowed in June as top-tier cities cooled.

Investors continued to chase cyclical firms, including steelmakers and coal miners, on expectations their mid-year earnings will greatly improve as industries gain from supply-side reform. (Reporting by Luoyan Liu and John Ruwitch; Editing by Eric Meijer)