China has laid the framework for a fund to protect stock and bond market investors by pooling interest generated from subscriptions to bond and share issues, financial newspapers reported on Monday.
"The news has raised hopes of a sustained rally in the short term," said analyst Liu Benzheng from Tiantong Securities.
Sinopec Corp, Asia's top refiner and the bourse's largest capitalised stock, rose 2.7 percent to 4.50 yuan.
Bank issues also found favour on Monday after the central bank gave the green light on Sunday for commercial banks to set up mutual fund ventures for the first time, which analysts say could bring new revenue sources and boost capital markets.
Merchants Bank, the biggest of five listed lenders, jumped 2.4 percent to 9.02 yuan while rival Minsheng Banking Corp Ltd, China's first private lender, surged 4.9 percent to 6.02 yuan.
"There are signs some institutional investors are building up positions in blue chips," Liu said.
China's benchmark index dived 15 percent in 2004 to become Asia's worst performer that year, hit by economic-cooling steps, corporate scandals, and expectations of a flood of new shares.
Beijing has been trying to lift markets. Regulators issued guidelines last Tuesday allowing insurers to invest up to $7.2 billion of assets in domestic stocks, though when they would actually do so remained unclear.