Chinese stocks rebounded across the board on Thursday as investors snapped up healthcare and property shares battered by a recent selloff, while tech firms rallied on hopes of more government support.
Assistance for the tech sector would mark the latest in a series of growth boosting measures being rolled out by Beijing as an escalating trade war with the United States puts more pressure on China's already slowing economy.
The Shanghai Composite index ended 1.9 percent higher, while China's blue-chip CSI300 index closed up 2.5 percent, recouping Wednesday's losses.
Gains were broad based, with the CSI300's financial sector sub-index rising 2.3 percent, consumer staples up 3 percent, real estate up 3.9 percent and healthcare up 3.8 percent.
Those sectors have been badly mauled in a summer selloff triggered by the Sino-U.S. trade dispute, worries over slowing economic growth and fears of more curbs to cool property prices.
Healthcare stocks have sunk in the wake of a vaccine scandal. Even after Thursday's rebound, the healthcare index is down nearly 14 percent since mid-July.
"We could have overestimated the downside risks for the economy, judging from recent economic data including the exports which are not that bad," said Wang Mingli, an analyst with Guoyuan Securities.
China's exports surged more than expected in July despite the imposition of U.S. tariffs, but more duties are on the way.
Beijing late on Wednesday said it would slap additional tariffs of 25 percent on $US16 billion worth of U.S. imports, in retaliation to news the United States plans to begin collecting 25 percent extra in tariffs on $US16 billion of Chinese goods from Aug. 23.
However, the latest volley in the trade war did little to dampen investor enthusiasm on Thursday as investors bet on further government support measures.
China's securities regulator said on Wednesday that it would revise regulations to ease companies' access to capital markets and expand the scope of foreign investment.
Technology shares gained after China said it would revamp a national leadership group charged with planning and studying its key technological development strategies, signalling the possibility of policy shifts that could benefit China's tech sector.
The tech-heavy ChiNext Composite index jumped 3.4 percent, and the Shenzhen index was up 2.7 percent.
But Gao Ting, head of China Strategy at UBS Securities, cautioned against expectations of widespread government support for the market.
"We think the extent of policy loosening this time is likely to be constrained by the government's deleveraging policy stance and concerns of a housing bubble," Gao said in a note, referring to Beijing's multi-year campaign to reduce risks in the financial system and tackle a mountain of corporate debt.
"A delicate policy balance is needed to reduce the risk of a hard-landing and also to avoid excessive stimulus."
In Hong Kong, the Hang Seng index was up 0.8 percent while the China Enterprises index gained 1 percent. The Hang Seng's IT sector sub-index rose 2.6 percent
In currency markets, the yuan strengthened after the central bank left the midpoint of the currency's daily trading band essentially unchanged.
At 0719 GMT, the yuan was changing hands at 6.8278 per dollar, 40 pips firmer than the previous onshore close of 6.8318.
Traders said the yuan was slightly stronger as cautious investors liquidated long dollar positions, as they were wary of any potential policy moves to stabilise the Chinese currency.
Several market participants said that Thursday's slight strengthening does not mean the yuan's downward trend has ended.
A Reuters poll on Thursday found market expectations that the yuan will regain some of its recent losses against the dollar, but only if the trade war between the U.S. and China eases