China's stock market surged 4.94 percent on Wednesday in a broad rally led by heavyweights such as financials and resource plays, as strong gains in overseas markets, particularly Hong Kong, encouraged buying.
The Shanghai Composite Index ended at 5,412.694 points, following a steep decline over the past month on fears of further monetary tightening, a temporary freeze on new mutual fund products and expectations that listings of large-cap stocks would sap funds from the secondary market.
Gainers overwhelmed losers 838 to 16 in the Shanghai A-share market.
But turnover in Shanghai A shares remained modest at 87.4 billion yuan ($11.75 billion), up slightly from Tuesday's 82.3 billion yuan, showing investors remained cautious with more monetary tightening expected as soon as this week.
"The market fell too much in the past weeks, so a rebound like today's is natural," said Zhou Guangshan, analyst at Guotai Securities Co "But I don't think there's much room for stocks to rise further."
Analysts said the rally, following four straight days of losses, was spurred by sharp rises in overseas stock markets on Wednesday, particularly in the neighbouring Hong Kong bourse, where the benchmark Hang Seng Index gained more than 4 percent.
"Global stock strength sparked a technical rebound on the Shanghai market today," said analyst Zhou Fengwu at Orient Securities. "But the potential for the Shanghai index to rise sharply is limited as lingering weakness over the past month has weighed down investor sentiment." Analysts expect the central bank to announce another interest rate hike as early as this week to curb inflation, which could cap the market.