SHANGHAI China stocks rose sharply on Thursday, as the blue-chip CSI300 index posted its best day in more than nine months despite the surprise decision by Moody's to downgrade the country's sovereign credit rating a day earlier.
Traders cited growing hopes that global index provider MSCI Inc would add mainland Chinese shares to its benchmark next month, and some also hinted that state-directed buying might have helped prop up the market.
One stock analyst at a Chinese securities company said there was "national will" on Thursday for the market to go up.
The blue-chip CSI300 index .CSI300 rose 1.8 percent, its biggest gain since Aug. 15, and ended at 3,485.66 points, its highest close in more than a month.
The Shanghai Composite Index .SSEC advanced 1.4 percent to 3,107.83 points.
Chinese stocks also rose a touch on Wednesday after Moody's clipped China's credit rating by one notch, prompting official criticism.
The strongest performers in China's markets on Thursday were banking .CSI300BI and real estate stocks .CSI300REI, whose indexes jumped 3.3 percent and 4.0 percent, respectively.
The SSE 50 .SSE50 - dubbed China's "Nifty Fifty" index - leaped 2.7 percent to close at a near 17-month high.
Meanwhile, China's Nasdaq-style board ChiNext .CHINEXTP inched up 0.1 percent, reversing earlier losses to follow the broader market higher.
State intervention in financial markets is not unheard of in China. During the market rout of mid-2015, a band of government-backed investors, dubbed the "National Team", was ordered to try to stop the bleeding by buying stocks.
There was some speculation online that the National Team was at it again in the wake of the downgrade.
Stirring memories of the government-orchestrated campaign in 2015 to prop up stocks, 20 companies said late on Wednesday that their major shareholders planned to increase their holdings, the state-owned newspaper Securities Times reported.
In the foreign exchange market on Thursday, traders said they saw major state-owned banks selling dollars, which helped push the yuan CNY=CFXS to a near-two month high against the dollar.
Expectations were building that MSCI (MSCI.N) will announce China's inclusion in its Emerging Markets Index when it issues its annual classification review on June 20.
Snubbing China last year, MSCI cited concerns over share suspension rules and monthly limits on repatriating capital.
China Securities Co., a brokerage, said in a report on Wednesday: "The chance of an A-share inclusion into MSCI has risen drastically for 2017."
The brokerage encouraged continued buying of leading blue-chips, which have already outperformed small-caps this year.
JP Morgan, China International Capital Corp and BlackRock have also expressed optimism over prospects that A shares could be included by MSCI this year.
(Reporting by Luoyan Liu and John Ruwitch; Editing by Richard Borsuk)