Chinese stocks ended sharply higher in a volatile session on Tuesday, after an earlier sell-off attracted fresh buying from both local and foreign investors who believe the bull market is not yet over.

The market resumed trading after a public holiday on Monday with some investors cutting losses following last week’s 13 per cent tumble, but the indexes swung wildly in and out of positive territory over the day.

At the end of session, the CSI300 index of the largest listed companies in Shanghai and Shenzhen rose 3.2 per cent to 4,786.09, while the Shanghai Composite Index gained 2.2 per cent to 4,576.49 points.

Margin financing, IPOs

Last week’s sharp correction was triggered by fresh government moves to tighten margin financing, and worsened by a tidal wave of initial public offerings that sapped liquidity.

A mild rebound on Tuesday morning was used by some investors to dump shares, knocking key indexes down more than 2 per cent at one point.

“Many highly-leveraged investors are forced to sell shares at all costs due to margin calls,’’ said Zhou Lin, analyst at Huatai Securities Co.

But stocks staged a rebound in afternoon trade, with some investors drawing encouragement from a chorus of bullish comments from state-run financial newspapers arguing that the logic supporting the bull market has not changed.

Some analysts also attributed the rebound to improving liquidity situations this week.

“There might be an expectation of a recovery in the market as a substantial amount of capital, locked up for IPOs, will be released,’’ said Gerry Alfonso, director at Shenwen Hongyuan Securities Co.

The correction also attracted purchases from overseas.

Capital inflows

Foreign inflows into China’s stock market under the Shanghai-Hong Kong Stock Connect scheme surged for the second trading session, with 55 per cent of the 13 billion yuan daily north bound quota used up on Tuesday.

And on Friday, the previous trading session, investors used 61 per cent of the quota to buy China stocks, the highest level since November 2014, when the scheme was launched.

Thursday’s rebound was led by banking heavyweights, with the CSI300 bank index jumping more than 3 per cent.

The sector is benefiting from signs that China's economy is stabilising.

According to data, the real estate market had recovered in some major cities such as Shenzhen, China’s factory activity showed some signs of stabilising in June, and a private survey of Chinese firms pointed to China’s economy seeing a broad-based rebound in the second quarter.

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