China's stocks rally to three-year high

An investor checking stock index in a local brokerage firm, at Fuyang, Anhui province, Dec 2, 2014. [Photo/IC]

China's stocks rallied to a three-year high on Tuesday, led by the biggest gains in financial sector since 2009, as the central bank eased liquidity with rate cut and investors expect further easing.

The benchmark Shanghai Composite Index closed at 2,763.55 on Tuesday, up 3.11 percent or 83.39 points, jumping the most in 14 month. The measure has seen the highest close since July 2011, while Shenzhen Component Index climbed 2.98 percent to 9,366.95 on Tuesday.

A surge in turnovers has boosted the outlook for brokerages, as Guoyuan Securities, Founder Securities, Everbright Securities, Hongyuan Securities and Western Securities soared by the daily limit of 10 percent.

Banking sector remained bullish after the central bank revealed a draft rule of the long-awaited deposit insurance over the weekend. China Minsheng Banking jumped by the daily limit, and Bank of Communication and Huaxia Bank rose 9.96 and 8.23 percent to 5.96 and 11.18 yuan respectively.

Mining companies advanced on Tuesday, as Yunnan Coal Energy and Sichuan Shengda jumped by the daily limit, and Shaanxi Coal Industry closed at 7.05 yuan, up 4.14 percent.

The rally came amid the rate cut and expectation on further easing, as China's central bank has reduced the one-year lending rate by 40 basis points to 5.6 percent, and the one-year deposit rate by 25 basis points to 2.75 percent, according to an announcement on Nov 21.

"We now expect another 50 basis points cut to the policy rate and a 150 bps required reserve ratio cut in 2015," said Qu Hongbin, chief economist in China and co-head of Asian economic research of HSBC.

The CSI 300 Index rose 3.69 percent to 2,923.94.