SHANGHAI, Oct 31 (Reuters) - Shanghai stocks erased earlier losses to end slightly higher on Tuesday, underpinned by strong gains in transport firms even as China posted a disappointing October manufacturing activity index.
Selling pressure eased after Monday's drop that was triggered by liquidity concerns on the mainland. China's treasury bonds steadied on Tuesday as the central bank moved to calm the market with cash injections.
The blue-chip CSI300 index fell 0.1 percent, to 4,006.72, while the Shanghai Composite Index added 0.1 percent to 3,393.34 points.
For the month, CSI300 gained 4.5 percent, while SSEC was up 1.3 percent.
Investors were circumspect on Tuesday after the official Purchasing Managers' Index (PMI) showed growth in China's manufacturing sector cooled more than expected in October in the face of a weakening property market and tighter pollution rules.
"In general, China's GDP growth has been trending lower, but does that mean few investment opportunities? We don't think so," said Bin Shi, portfolio manager of China equities strategies at UBS Asset Management.
"Beneath the slowdown figures are seismic structural shifts that provide huge opportunities for investors who can capture them."
He pointed to Hong Kong-listed Tencent Holdings, China-listed Kweichow Moutai and Hangzhou Hikvision , as among a growing number of Chinese-listed firms that benefit from its transformation into a high technology- and consumption-driven economy.
In the medium term, Chinese fund managers boosted their suggested equity exposure for the next three months to the highest level in seven months and cut their suggested bond and cash allocations, a monthly Reuters poll showed.
Sector performance on Tuesday was mixed.
Banking shares <.CSI300BI > slipped the most, despite four of China's 'Big Five' state-owned banks reporting higher quarterly profits and slower growth in bad loans.
Shanghai International Port leapt 7.5 percent to a more than two-year high, leading a 1.5 percent rise in transport sector, as some investors expect a free port to be established in Shanghai. (Reporting by Luoyan Liu and John Ruwitch; Editing by Richard Borsuk)