Shanghai stocks hopped to close higher yesterday on the last trading day of the Year of the Rabbit, with investors confident that China will ease policies further to bolster the capital market in the Year of the Dragon.

The Shanghai Composite index jumped 1 percent to end at 2,319.12, the highest level in six weeks. The index rose 3.3 percent this week, its first back-to-back weekly gain in two months.

"Shanghai stocks rallied today, boosted by reports of rising liquidity and more investments by pension funds in future," said Zhao Wei, an analyst at Huaxin Securities. "The reports acted as a catalyst to lift investment sentiment."

Investors expect policies will be unveiled to boost economic growth after an indicator for January seemed to point to a continued fall in manufacturing.

HSBC Holdings Plc released its preliminary reading of the Purchasing Managers' Index of 48.8 in January, indicating a continued manufacturing shrinkage in the country for the third month. A figure above 50 means expansion.

Qu Hongbin, chief economist at HSBC for China, projected China may ease monetary policy to stabilize economic growth.

New loans of 110 billion yuan (US$ 17.5 billion) were lent by the nation's four biggest banks in January so far and there are talks such loans this month may hit 1 trillion yuan, the China Securities Journal reported yesterday.

Banks climbed. Hua Xia Bank added 3 percent to 12.12 yuan, and China Minsheng Banking Corp rallied 1.4 percent to 6.53 yuan. China Merchants Bank gained 2.36 percent to 13 yuan, and China Citic Bank rose 1.84 percent to 4.44 yuan.

Shanghai's stock market will shut next week for the Spring Festival holiday.