SHANGHAI (Reuters) - Battered Chinese stocks leapt to their largest one-day gain in two years on Tuesday and the yuan rose on a slew of signals that authorities are strengthening their resolve to support slumping markets.
The Shanghai Composite jumped 3.2%, its biggest daily gain since March 2022. Trade volume was the highest since May last year.
The blue-chip CSI 300 climbed 3.5% for its largest one-day rise since Nov. 2022, and the small cap index notched its biggest rise since 2008.
The rebound comes after country's main indexes sank to five-year lows in recent sessions on gloom about the sputtering economy and a lack of forceful policy stimulus measures like those rolled out during past crises.
Most of the surge happened when traders returned from markets' midday break having digested a volley of helpful headlines.
Bloomberg News had reported President Xi Jinping will discuss the struggling stock market with financial regulators. Regulators also announced further curbs on short selling and state investors said they were expanding their stockbuying plans.
"(It's) still far from convincing, but you stop panicking when the policymakers start to panic," said Nick Ferres, chief investment officer at Vantage Point Asset Management in Singapore, who has been a recent buyer.
Foreigners' net buying at 12.6 billion yuan ($1.75 billion) was the largest one-day rush of the year so far.
In Hong Kong, the Hang Seng rose 4% for its biggest gain in six months and beaten-down market darlings led the way, with the Hang Seng tech index up 6.8% in its biggest rise in more than a year.
Online giants and Alibaba (NYSE:BABA) and JD (NASDAQ:JD).com were among the top performers with gains larger than 7.5%. Developer Longfor rose 10% as did Country Garden's property services division.
On the mainland, healthcare shares, up 8%, artificial intelligence shares, up 7.4%, and new energy shares, up 6.3%, were large gainers.
Even previously freefalling small caps rose 7%.
"The news flash about President Xi talking with financial regulators about the stock market ... it's also another signal that the president himself is taking this matter seriously," said Khoon Goh, head of Asia research at ANZ.
Bloomberg said the China Securities Regulatory Commission did not respond to requests for comment on its report, which said the regulator planned to update top leaders on the state of markets as soon as Tuesday.
The yuan, which has been underpinned by firmer-than-expected central bank guidance in recent days, was also on the rise, lifting from Monday's three-week low to 7.1865 per dollar.
U.S.-listed shares of Chinese e-commerce firms Alibaba, JD.com and PDD Holdings rose between 4.4% and 5.6% in premarket trading on Tuesday, while the $4.09 billion iShares China Large-Cap ETF climbed nearly 4%.
But some analysts said all that seemed to be supporting the market bounce was buying by state-backed investors dubbed the "national team", not a sudden reversal of investor sentiment, with few signs policymakers would act soon to address structural economic problems such as weak demand and deflationary pressures.
State fund Central Huijin Investment said on Tuesday it expanded the scope of funds it's buying and will further increase purchasing, seen as a broad - if short-term - support.
"I would say these kind of measures were needed to support the investors' sentiment, so the initial reactions were all positive," said SMBC economist Ryota Abe.
"However, the economic fundamentals remain unchanged. As long as markets have fundamental concerns on the real economy, the slew of announcements will remain effective only in the short term."
($1 = 7.1894 Chinese yuan renminbi)