China stocks rose on Monday after the central bank cut banks' reserve requirements to combat slowing economic growth, helping to ease fears that regulators were set to crack down on riskier trading after a blistering rally to seven-year highs.

Benchmark money rates sank after the move by the People's Bank of China (PBOC) on Sunday, which could result in one trillion yuan ($161.2 billion) worth of fresh cash flowing into the financial system, with some of it expected to find its way into the red-hot stock market.

The PBOC cut the reserve requirement ratio (RRR) for all banks by 100 basis points to 18.5 per cent, effective April 20.

It was the deepest single reduction since the depths of the global financial crisis in 2008, and showed how the central bank is stepping up efforts to ward off a sharp slowdown in the world's second-largest economy.

"The cut is deeper than expected, and will improve liquidity shortages in the banking system and facilitate bank lending," Cinda Securities Co wrote late on Sunday, adding the easing will "benefit the stock market," especially blue-chips.

The view was echoed by Industrial Securities, which said banking stocks will benefit the most from China's monetary easing if the PBOC's latest move does indeed spur fresh lending and help bring down financing costs for struggling companies.

The CSI300 index rose 0.7 per cent to 4,628.17 points by mid-morning, after dipping into the red at one point, while the Shanghai Composite Index was up 0.6 per cent at 4,313.06 points.

But Hong Kong's Hang Seng index dropped 0.4 per cent, to 27,548.97, while the China Enterprises Index was off 0.2 per cent. Both had surged in the past few weeks as mainland Chinese investors piled into the city's market in search of bargains.

Many investors had been braced for a selloff on Monday prior to the PBOC's move after China's security regulator warned investors to be cautious.

Chinese retail investors have rushed to open stock accounts and borrow a record amount of money to buy shares, convinced that the market still has a way to go after rallying more than 80 per cent since late November.

“Over the weekend, regulators gave the market both sticks and carrots, emboldening both bulls and bears," Qilu Securities wrote in a note to clients.

"The policies add to uncertainty in the capital markets."

Money Markets

China's one-year interest rate swap based on the seven-day repurchase agreement opened down 25 basis points on Monday, traders said, while the benchmark liquidity indicator, the seven day bond repo, opened at 2.66 per cent, down nearly 20 basis points.

"It's clear that the government is going all out to reduce fund-raising costs for the economy," said a trader at a state-owned bank in Shanghai.

"As such, money market rates will see sharp fall in coming weeks and months, with the benchmark 7-day repo rate having the potential to head for 2 percent, its lowest post-crisis level."

The yuan was changing hands at 6.2027 per dollar shortly after market open, sharply softer from Friday's close even though the bank set a firmer official midpoint.

0.1 ($1 = 6.2031 Chinese yuan renminbi)

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