China stocks surge to 3-year high on speculation of more government stimulus

SHANGHAI (Reuters) - Chinese stocks extended their rally for the second day on Wednesday, with key indices hitting over-three-year highs, powered by gains in property and brokerage shares partly on speculation of more stimulus from Beijing.

Analysts also said the recent gains in the market had driven up investor confidence, leading to increased interest from retail investors. "The expectation of a bullish stock market is the main drive behind the rise in brokerage stocks recently as they will benefit most from it," said Zhang Gang, analyst at Central China Securities in Shanghai.

However, trading was volatile with shares paring back some of their earlier gains by midday.

The CSI300 index rose 1.5 per cent to 2,967.61 points at the end of the morning session, while the Shanghai Composite Index gained 0.5 per cent to 2,776.48 points.

Both indices, which posted their biggest single-day rise in over a year on Tuesday on speculation of further policy easing by the central bank, hit their highest level since July 2011 earlier in the session.

Top brokerage CITIC Securities rose 2.4 per cent while smaller rivals jumped 5-10 per cent.

Property shares also rallied hard, with the CSI300's sub-index gaining 2.1 per cent. Traders say the sector was underpinned by speculation of further policy easing after last month's unexpected rate cut from the People's Bank of China amid cooling economic growth.

The CSI300 index has gained around 15 per cent since the Nov. 21 rate cut.

"The interest rate cut and speculations of a cut in (banks') reserve requirement ratio in the near future is making investors believe the revenue in the property sector will improve next year," said Zhang Gang, analyst at Central China Securities in Shanghai.

In Hong Kong, the Hang Seng index dropped 0.4 per cent to 23,555.99 points. The Hong Kong China Enterprises Index of mainland companies gained 0.1 percent to 11,135.77.

Total volume of A shares traded in Shanghai was 36.49 billion shares, while Shenzhen volume was 17.90 billion shares. Turnover hit a record high late last week reflecting increasing interest from retail investors.

Total volume of shares traded in Hong Kong was at 120.0 billion.