Chinese stocks were bullish Monday, the first trading day following a reserve requirement ratio (RRR) cut and new short-selling measures.
The benchmark Shanghai Composite Index surpassed the 4,300 point mark to open at 4,301.35 on Monday, up 0.33 percent from its previous close, and hit 4,331.28 by midday, up 1.03 percent.
The People's Bank of China on Sunday lowered the RRR for all banks by 100 basis points to 18.5 percent. This is the second reduction this year and the largest since November 2008.
The RRR cut, which came into effect on Monday, added more liquidity by reducing the amount of cash that banks must hold as reserves.
Analysts say the RRR cut was expected as growth slowdown in economic indicators, including industrial output and retail sales, have triggered concern.
However, the cut was more than expected and could free up to 1.5 trillion yuan (244.88 billion U.S. dollars) into the real economy.
Xu Gao, an analyst with Everbright Securities, narrowed this to 1.3 trillion yuan in his forecast.
The benchmark Shanghai Composite Index rose 1.51 percent to 4352.07 points during the morning session, a seven-year record high, while the Shenzhen Component Index also reversed its lower opening and climbed nearly one percent to 14,277.49 during the morning session.
Analysts say performance was also boosted by the securities regulator's clarification of new short-selling measures.
China's securities regulators said on Friday that fund managers would be allowed to lend shares for short-selling after mainland markets had closed, the number of stocks investors can short sell would also be increased.
This should promote a balanced development of margin trading rather than suppress the stock market, said China Securities Regulatory Commission (CSRC) spokesperson Deng Ke on Saturday.
In the past five years, margin buying experienced rapid development, while short selling with borrowed stocks saw much slower growth, according to a notice issued by the Shanghai and Shenzhen bourses and two industry associations.
Short selling by borrowing stocks is a mature mechanism commonly seen overseas, which can reduce fluctuations, discover reasonable prices and hedge against market risks, said Deng, adding that these measures were outlined in a 2014 guideline on promoting the healthy development of the capital market.
