Chinese investors jumped back into stocks on Monday in heavy volume trade that pushed prices to seven-week highs, boosted by hopes for more economic stimulus after the central bank expanded a scheme that increases banks' ability to lend.
The yuan rose to its highest levels since its surprise devaluation on Aug. 11 sent shock waves through global markets, with investors fearing the worst for an economy that for years has been the growth engine of the world.
The mood on Monday was a far cry from June, July and August when Chinese stocks appeared to be in freefall and authorities were scrambling to put a floor under markets with an unprecedented flurry of rescue measures.
Hopes for more economic stimulus measures from Chinese authorities prompted buyers back into the market.
China is due to announce a five-year plan for the economy later this month and over the weekend the central bank increased a pilot scheme on bank lending to several major centers, including Beijing and Shanghai.
The scheme allows banks to refinance high quality credit assets.
"The policy may not immediately inject a lot of liquidity into the economy, but it has boosted expectations of monetary easing," said Wu Kan, head of equity trading at Shanghai-based investment firm Shanshan Finance.
The CSI300 index of the largest listed companies in Shanghai and Shenzhen stock markets rose 3.2%, while the Shanghai Composite Index gained 3.3%.
Both hit their highest levels since Aug. 24, although they are still down more than 30% from their highs in mid-June, the start of a market rout that rocked global markets and prompted heavy-handed intervention from Beijing that shook investor confidence.
But in a sign that investors may be returning to the market, trading volumes in Shanghai jumped over 60% from the previous session, and were nearly triple the low hit on Sept. 30.
It marked the first sharp pick up in trading volume in conjunction with a rising market since August.
While that can point to potential buying strength, this week effectively is the first proper trading week for Chinese markets this month following a long holiday that took up most of the past two weeks. So it is unclear if the rally is sustainable given that the value of many shares is still relatively high.
Comments from Yi Gang, deputy governor of the People's Bank of China (PBOC), added to the more positive market tone. He was quoted in official media as saying the stock market correction was "almost over."
Global markets also have been supported by expectations that central banks, including the U.S. Federal Reserve, would keep borrowing costs low to try to revive the sluggish global economy.
Views that the risk of a Fed rate rise this year is falling have undermined the dollar and on Monday boosted the yuan.
The Chinese unit rose close to 0.4% for its strongest one-day performance since March, reaching levels not seen since the unexpected August devaluation.
The devaluation roiled global markets and China had to scramble to contain fears that it wanted the currency to depreciate even further to help its export industry.
In fact, developed economies are to blame for the global economic malaise because their slow recoveries were not creating enough demand, China's Finance Minister Lou Jiwei was quoted as saying on Monday.
"Developed countries should now have faster recoveries to give developing countries some external demand," he said in an interview published in the China Business News.
"The United States isn't at the point of raising interest rates yet and under its global responsibilities it can't raise rates," Lou was quoted as saying.