Chinese stocks surged for a second day on Friday as a government rescue plan offered a respite from a month-long rout, but analysts warned of further uncertainty and volatility ahead.
The rally also provided some support to regional markets, which had earlier this week been hammered by fears about a spillover effect beyond China`s borders.
By midday, the benchmark Shanghai Composite Index had surged 5.16 percent, or 191.56 points, to 3,900.89.
The Shenzhen Composite Index, which tracks stocks on China`s second exchange, jumped 4.00 percent, or 78.26 points, to 2,033.61.
The Shanghai market rocketed 5.76 percent on Thursday, after the government announced additional policies to avoid a market crash.
They came after the index plunged by almost a third in less than four weeks, wiping trillions from market capitalisations, spreading contagion in regional markets, and raising fears over the potential impact to the real economy.
The tide turned after the government banned big shareholders -- those holding at least five percent stakes -- and company executives from selling stock for the next six months, and launched a police crackdown on short-selling.
"Market sentiment has definitely reversed significantly and started to stabilise, so it`s safe to say that the state`s measures have won initial success," Phillip Securities analyst Chen Xingyu told AFP.
"However, there is still a chance for the market to see a second withdrawal (of funds) after big rises like this, but it won`t be as lasting and as deep as earlier plunges," he said.
The announcement also helped reverse losses in other Asian markets, with Hong Kong surging for the past two days, while Tokyo, Sydney and Seoul among others also enjoying healthy gains.
On Friday, more than 1,300 companies remained halted from trading, nearly half of total listings, Bloomberg News reported. Trading suspensions tend to slow market activity and defer risk until later.
The stock market slide was a dramatic reversal of a 150 percent charge in the 12 months to its peak last month, fuelled by tens of millions of retail investors using borrowed funds.China`s economy, the world`s second largest, is already faltering. Gross domestic product expanded 7.4 percent in 2014, the slowest pace since 1990, and weakened further in the first three months of this year.
But the International Monetary Fund (IMF) said Thursday that there was no reason to lose faith in China`s economy because of the bursting stock market bubble.
"There is no particular reason to have lost confidence," IMF chief economist Olivier Blanchard told a news conference in Washington.
The spillover of the market rout into the economy was "likely to be small", he added.
Auto and property sales have been affected, media reports say, though analysts expect the overall impact on consumption to be relatively small.
"Not only have the stock market gyrations had a smaller impact on household wealth than many believe, they are unlikely to make a meaningful difference to consumption," Julian Evans-Pritchard, China Economist for Capital Economics, said in a note on Friday.
The market boost has included allowing insurance companies to invest more assets in stocks and a programme to buy the shares of smaller companies.
The country`s 111 major state-owned enterprises were also barred from selling shares in their listed subsidiaries by the State-owned Assets Supervision and Administration Commission, which oversees them.
"The volatility of this market has led many investors to question where China`s equity market is headed," Andy Rothman, investment strategist for Matthews Asia, said in a research report this week.
"However, given the market is driven primarily by retail investors, it is impossible to predict how their sentiment may evolve."
