SHANGHAI: China stocks rallied on Thursday, with the blue-chip index closing at its highest in two-and-a-half years, boosted by Beijing's decision to spend more to prop up the economy.

The blue-chip CSI300 index ended 2.1% higher at 4,335.84, its highest closing level since Jan 26, 2018, while the Shanghai Composite Index gained 2.1% to 3,090.57.

Leading the gains, the CSI300 real estate index and the CSI300 SWS securities index rallied 3.5% and 7%, respectively.

China's finance ministry has said it is planning to sell more special treasury bonds to fund public health-related infrastructure facilities and aid a virus-hit economy, part of a proposal to issue 1 trillion yuan in such bonds this year.

China will allow local governments to use part of the money they raise from special bonds this year to recapitalise some small banks, the cabinet said on Wednesday, seeking to shore up banks and support struggling small firms amid the coronavirus crisis.

Market sentiment has turned more upbeat on signs that China's economy is gradually emerging from a sharp contraction in the first quarter. Factory activity grew at a faster clip last month after the government lifted lockdown measures and ramped up support steps, a private business survey showed on Wednesday.