Both stock markets on the Chinese mainland surged on Monday, amid a positive earnings outlook for Chinese firms, and continued signs of economic recovery.

The Shanghai Composite Index increased 2.41 percent to 2,346.51 points, its highest level since June 1 last year, led by securities companies, while the Shenzhen Component Index climbed 261.79 points, or 2.8 percent, to 9,618.92 points.

The Hang Seng China Enterprises Index of mainland companies traded in Hong Kong rose 0.82 percent. Two weeks ago, Swiss banking giant UBS AG announced that it considered China's three-year bear market is over.

Financial shares rallied especially on Monday after the China Securities Regulatory Commission announced over the weekend that from Thursday, it will allow margin-trading and short-selling in 500 stocks on both the Shanghai and Shenzhen markets.

Reports said investors also welcomed a report on Sunday showing profits made by industrial companies in the country jumped 17.3 per cent in December from a year earlier.

The market capitalization of the securities sector increased 6.28 percent on Monday,

"The economic environment is turning better. The government may start to loosen the control of securities companies and provide a better environment for them," said Li Daxiao, head of research at Yingda Securities, the Shenzhen-based domestic brokerage. "The securities sector has more space to improve than other financial sectors."

More than 20 stocks, including China Merchants Securities Co, rose by their daily limit of 10 percent, across various industries, driven mainly by the news about a rise in industry's overall profit level, said experts.

The profits earned by China's industrial companies increased 17.3 percent in December from a year earlier to 895 billion yuan ($144 billion), the National Bureau of Statistics said.

Analysts suggested the growth in industrial earnings could lead to even bigger movements of stocks as investor confidence grows.

Last week, the preliminary HSBC China Manufacturing Purchasing Managers Index, a gauge of the country's manufacturing activity, rose to 51.9 in January from 51.5 in December.

The figure, a 24-month high, is the latest indication of a rebound in China, which is boosting market confidence.

The HSBC index has been in expansionary territory for three consecutive months, signaling steady growth for manufacturing sector.

"The bull market in China has started. China's stock market is still at the bottom line compared to the global market, but the continual positive government policies will give it a push in the other direction," said Yang Delong, chief strategy analyst at China Southern Asset Management Ltd.

Others added the country's successful test flight of its first domestically made jumbo airfreighter, the Yun-20 or Transport-20, on Saturday was a boost to market sentiment, especially the aerospace and defense sectors.

huangtiantian@chinadaily.com.cn