An investor smiles in front of a screen displaying stock indices and prices of sharesat a securities brokerage in Fuyang, East China's Anhui province, Nov 24, 2014. [Photo/IC]

BEIJING - Chinese shares were bullish on Thursday, the second trading day after the Spring Festival break, led by financial companies, decoration, engineering construction and water conservation.

The benchmark Shanghai Composite Index edged up 2.15 percent to finish at 3,298.36 points, while the Shenzhen Component Index advanced 1.83 percent to close at 11,750.78 points.

The Hushen 300 Index, which samples about a fifth of the total stocks listed on the two bourses, climbed 2.52 percent to close at 3,566.3 points.

The ChiNext Index, tracking China's Nasdaq-style board of growth enterprises, gained 0.19 percent to end at 1,880.39 points.

The financial sector led the increase with a 6.61-percent growth from the previous close, followed by the decoration sector, construction and the railway transportation sector.

The State Council, China's cabinet, on Wednesday pledged to step up fiscal policy support and strengthen targeted controls to combat downward pressure on the economy.

Hoping to activate more private investment, the cabinet said taxes on investment earnings from non-monetary assets would be levied in stages rather than a one-off collection.

"The robust growth in shares was largely driven by the news," said Gao Xiang, an analyst with CITIC Securities.

The cabinet decided to extend tax breaks to more small businesses. From 2015 to the end of 2017, companies with annual taxable income under 200,000 yuan ($32,573) will have their corporate tax halved. Previously, the threshold was 100,000 yuan.

Related story:

Equity bull run 'just getting started', by Agencies

According to Mark Mobius, the bull market in Chinese stocks is just getting started and he is using the biggest price swings in five years to boost holdings.

"We are buying more in China because we think this is the beginning of a longer-term bull run," Mobius, who oversees about $40 billion as the executive chairman of Templeton Emerging Markets Group, said in a phone interview from Thailand.

Mobius, who has been investing in emerging markets for more than four decades, is stepping up his wager on China after correctly predicting four months ago that the nation's stock rally had further to run amid low valuations and government efforts to open up State-dominated industries.

The Shanghai Composite Index's 51 percent jump from a four-year low in June 2013 is still less than half the average 122 percent gain during 26 bull markets since 1990.

China's rally has accelerated during the past month as the central bank unexpectedly cut interest rates and mainland investors opened new stock accounts at the fastest pace in five years. While the Shanghai gauge posted its biggest one-day tumble since 2009 on Dec 9, Mobius said that the increased volatility is creating opportunities to buy mispriced shares.

The Shanghai Composite Index surpassed 3,000 for the first time in three years earlier in December.

Mobius said he has been buying Chinese stocks "across the board", including oil-related companies, on expectations that crude prices will recover from five-year lows.

PetroChina Co, the nation's biggest energy company, has climbed 21 percent in Shanghai trading in November.

Trading in mainland equities surged to all-time highs this past week as investors weighed the sustainability of gains that have sent valuations to the highest level in three years. The rally is "irrational", Ken Peng, a strategist at Citigroup Inc's private bank in Hong Kong, said on Dec 4. Andy Xie, a former World Bank economist, called the advance a "bubble" driven by leveraged traders.

The People's Daily joined the official Xinhua News Agency and the Securities Times with articles last Tuesday highlighting risks in stocks. Their comments followed a similar warning from the nation's securities regulator.

While Chinese shares will experience "corrections along the way", they will not enter a bear market any time soon, said Mobius, whose $13 billion Templeton Asian Growth Fund has returned about 8.5 percent this year.

Such optimism has put Mobius in a camp with Morgan Stanley's Hong Kong-based strategist Jonathan Garner, who said on Dec 2 that there is potential for an "ultra-bull" rally where share prices double in 18 months.

The Shanghai Composite is poised to rally to 3,500, or 19 percent above the last close, Shenyin & Wanguo Securities Co wrote in a recent report.