The Shenzhen Composite Index climbed 4.16 per cent to 700.2 points while the Shanghai and Shenzhen 300 Index, established in 2005 to track the top 300 A shares in the two markets and is becoming the new benchmark for most industry professionals, rose 3.97 per cent to close at a record 2,491.31 points.

Combined turnover in the two markets reached a new high of 152 billion yuan, beating the 145 billion yuan record set last Wednesday.

More than 75 companies rose their daily limit of 10 per cent in Shanghai, while just 19 closed lower for the day.

Share prices have been rising continuously since the fourth quarter of last year, as investors flock back to the surging stock markets.

'There is so much money coming in that even a very small positive signal can influence the market in a big way,' Citic Jiantou Securities analyst Chen Xiangsheng said.

'The current prices already reflect earnings potential for this year but if companies release higher than expected earnings reports in the first and second quarters, that could push the market up even more.'

His year-end target for the Shanghai Composite is 3,500 points but he admits it is likely to reach that level much earlier.

A new driver for the rally could come as early as Thursday when the National Bureau of Statistics is scheduled to release macroeconomic data for last year.

The market has barely noticed that the China Securities Regulatory Commission earlier this month suspended approval for new mutual funds and issued a circular to fund management companies advising them against short-term speculative investments in an effort to soothe the stock fever that has returned to the nation's investors.

Analysts believe more measures could be on the way if regulators do not see a correction soon.

'Allowing a large supply of new initial public offerings into the market is probably the easiest way to control the current situation,' HSBC analyst Steven Sun said. 'You have to remember there is more than 30 trillion yuan sitting in bank deposits and just three trillion yuan of tradable shares in the market.'

Term deposits in China typically earn less than 3 per cent interest while the Shanghai Composite rose 130 per cent last year and has climbed almost 10 per cent so far this year. The Shenzhen Composite has risen 26 per cent this year.

Analysts believe the central bank is likely to continue its policy of monetary tightening by raising reserve requirements at the banks and possibly raising interest rates, in part to remove liquidity that could flow into the stock market.

But with so much money already sitting in bank accounts, some analysts believe this will have little effect on prices.

'We could see a Xinhua or People's Daily editorial talking down the 'irrational' market,' Mr Sun said.

Editorials in prominent government mouthpieces have been used in the past to indicate Beijing's displeasure at markets rising too fast.

The introduction of more sophisticated trading instruments such as short selling and index futures is expected by April at the latest and will allow investors to profit from falling as well as rising prices. Some observers have speculated that prices of large-cap stocks are being driven up by wily investors who hope to profit from a correction once they can sell short.