China stocks posted their biggest gain in nearly three months on Thursday, hitting fresh seven-year highs as the red-hot market brushed off the authorities' unease over the levels of margin trading in a market that has surged almost 30 percent this year.
The Shanghai branch of China's central bank has ordered commercial lenders to check for risks in their margin trading business, and submit their margin trading accounts and list connected wealth management products.
The inspection comes as stock trading is dominated by retail investors who are rushing into the market, borrowing a record amount of money to buy stocks and pushing trading turnover to historic heights.
To caution against risks, China's top securities regulator, Xiao Gang, on Thursday urged stocks investors to be "rational and calm".
"Xiao's message is that investors should be responsible for their own investment decisions and shoulder consequences. It's a very natural caution," said David Dai, Shanghai-based investment director at Nanhai Fund Management Co Ltd.
"Investors will see more volatility and stock performance will diverge, but the bull market is far from over."
The CSI300 index of the largest listed companies in Shanghai and Shenzhen rose 3.0 percent, to 4,513.55, while the Shanghai Composite Index gained 2.7 percent, to 4,194.82 points.
Investors also refused to be put off by the possible negative impact from the launch on Thursday of two stock index futures products, which were expected to give investors incentives to lock in profits or even short-sell overvalued stocks.
Chinese liquor makers rose sharply, led by Kweichow Moutai Co Ltd and Wuliangye Yibin Co Ltd, as smaller rivals flagged a revival in profits. SAIC Motor Corp Ltd shares jumped 7.3 percent to all-time high, as analysts say China's largest automaker has lagged the rally in mainland markets.
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