Better-than-expected economic data, optimism about Shanghai's free trade zone and growing talk of financial reform propelled the benchmark Shanghai Composite Index to its biggest daily gain in nine months on Monday.

The index was up 3.4 percent at 2,212.5 points, its largest advance since Dec 14, when it surged 4.3 percent. It was the first time the index passed the 2,200 mark in the past three months.

The index opened higher and soared after the mid-day break. Volume hit 178.9 billion yuan ($29.2 billion), the highest since May 2011, when the gauge slid below the 3,000 mark.

The smaller Shenzhen Component Index rose 2.71 percent to 8,504.74.

Leading blue chip shares in banking, insurance and securities were heavy gainers, with Shanghai Pudong Development Bank Co, Agricultural Bank of China, Bank of Communications Co, Industrial Bank Co and Ping An Bank Co all surging by the daily limit of 10 percent.

The sub-index of banking stocks surged 7.45 percent on Monday, the biggest daily gain among industry groups, according to sohu.com.

"It is rare to see blue chips move by the daily limit, and the surges by Shanghai Pudong and Agricultural Bank had a lot to do with their participation in a pilot program that allows some lenders to raise funds by issuing preferred shares," said Wang Jianhui, an analyst from Southwest Securities Inc.

The prospect of preferred share sales has alleviated the pressure on capital-constrained Chinese banks and reduced the risks of lending curbs and other impediments to the banking system, said Zhang Qi, an analyst with Haitong Securities Co.

"When the company takes back money by issuing preferred shares, the health of the balance sheet of these banks becomes stronger," David Poh, the regional head of portfolio-management solutions at Societe Generale SA's private bank, told Bloomberg News.

The Producer Price Index, a measure of inflation at the wholesale level, fell 1.6 percent year-on-year in August, extending its contraction to 18 months. But on a monthly basis, the reading rose 0.1 percent, showing the broad economy is strengthening on the back of the government's stabilizing measures.

"The economic figures, especially the PPI, are declining with narrowing margins, which is better than the market expected.

"This indicates that manufacturing companies are stabilizing during their restructuring and capacity adjustment," said Wang.

The Consumer Price Index rose 2.6 percent year-on-year in August, edging down from 2.7 percent in both June and July and showing that inflationary pressure at the consumer level is easing.

Shipping heavyweights were another bright spot on Monday. Cosco Shipping Co and Shanghai International Port Group Co both soared more than 9 percent on prospects the Shanghai FTZ will reinforce the city's efforts to become a global trade and shipping hub.

Speaking of Chinese commercial banks, analysts are upbeat about their upward traction in the broader index, because their price-to-earnings ratios are much lower than those of their international counterparts. That indicates a stable financial situation.

"Ping An Bank's PE ratio is merely 6.6, much lower than the controllable level of between eight and nine," said Wang.

wang_ying@chinadaily.com.cn