SHANGHAI: China stocks posted their biggest one-day gain in three weeks on Wednesday, led by banking and commodity shares, as hopes of domestic economic growth offset fears of tighter monetary policy.

Some traders also attributed the market strength to bullishness ahead of the annual gathering of the National People’s Congress, which starts on Friday.

The blue-chip CSI300 index jumped 1.9% to 5,452.21, while the Shanghai Composite Index gained 2% to 3,576.90 points. Both indexes notched their best performance since early February.

China’s top banking watchdog said on Tuesday regulators were studying effective measures to reduce the risk of foreign capital inflows. The remark is interpreted by some as pointing to Beijing’s little willingness to lift interest rates, a move that could invite more inflows.

Investors also shrugged off results from a private-sector survey showing China’s services sector activity grew at its slowest pace in 10 months in February.

“We expect manufacturing and services PMIs to recover in March, as the COVID-19 situation was quickly brought under control in recent weeks. Beijing may gradually relax some social distancing rules in coming months and some pent-up demand could be released,” Nomura wrote.

Larry Hu, an economist at Macquarie Capital Ltd, said that there’s no need to worry about inflation in China.

“For 2021, we expect China to see reflation, but not high inflation,” Hu wrote. “The reflation trend is great news to COVID losers such as financials and industrial companies.”

Cyclical stocks rose sharply, reflecting investor optimism toward economic growth. Banking shares jumped nearly 5%, while energy stocks rose over 3%.—Reuters