China's benchmark blue-chip index surges over 4 per cent

The market was also encouraged by news that China is preparing to overhaul its income tax law for individuals, with Shanghai trading turnover rising to a three-month high.

China's benchmark blue-chip index surged over 4 per cent on Monday for its best daily performance in almost three years and shares in Hong Kong added more than 2 per cent, as investors took heart from Chinese regulators' statements of support.

The market was also encouraged by news that China is preparing to overhaul its income tax law for individuals, with Shanghai trading turnover rising to a three-month high.

The blue-chip CSI300 index rose 4.3 per cent, to 3,270.27, its best day since November 2015. The Shanghai Composite Index jumped 4.1 per cent, its biggest one-day gain since March 2016. Shenzhen's start-up board ChiNext surged 5.2 per cent.

The gains extended to Hong Kong, where the Hang Seng index added 2.3 per cent to 26,153.15 points and the China Enterprises Index ended 2.6 per cent higher.

The day's gains extended a rally that started on Friday, when Chinese Vice Premier Liu He, who oversees the economy and financial sector, joined the heads of the China Securities Regulatory Commission, the China Banking and Insurance Regulatory Commission, and the People's Bank of China in coordinated statements to rally investor confidence amid a bruising market slump.

Over the weekend, President Xi Jinping added his voice to the chorus, declaring that the Communist Party would always support private firms' development and that the role of the private economy is unquestionable, according to the official Xinhua news agency.

Yang Hai, an analyst at Kaiyuan Securities in Xi'an, said the statements of support "laid the foundations for a rebound" after a slump caused by factors including the Sino-U.S. trade war, domestic economic adjustments and especially concerns over the rising risk of forced margin calls.

"We see a high likelihood that the A-share market will enter a period of rebound," Yang said in a note. He added that planned tax cuts and the release of individual income tax deductions would particularly support banks, insurance and consumer firms.

China's government on Saturday published a draft version of new rules for deductions available to individuals as it overhauls its individual income tax law, in a bid to spur growth.

Investors snapped up shares across sectors, with securities firms seen as particularly likely to benefit from official moves to support stock markets. A sub-index of the CSI300 tracking securities firms leapt the daily limit of 10 per cent.

The CSI financial sector sub-index gained 4.37 per cent, the consumer staples sector added 4.35 per cent, the real estate index jumped 4.50 per cent and the healthcare sub-index was 5.07 per cent higher at midday.

The smaller Shenzhen index ended 4.9 per cent higher.

In Hong Kong, the sub-index of the Hang Seng tracking energy shares rose 2.3 per cent, while the IT sector rose 3.56 per cent, the financial sector ended 2.36 per cent higher and the property sector rose 1.97 per cent.

Despite Monday's surge, the Shanghai Composite index is still down 19.7 per cent for the year, while the CSI300 has fallen 18.9 per cent. The Hang Seng is down 12.6 per cent for the year to date.

China's currency remained fell slightly against the U.S. dollar, but losses were limited thanks to the surge in equities. The yuan was quoted at 6.9372 per U.S. dollar at the end of its onshore trading session, compared with an onshore trading close of 6.9290 per dollar on Friday.