SHANGHAI/HONG KONG, July 20 (Reuters) – China stocks rose 3% on Monday, led by financial firms, after regulators moved to bolster the market by lifting equity investment cap for insurers and encouraging mergers and acquisitions among brokerages and mutual fund houses.

** At the close, the Shanghai Composite index was up 3.11% at 3,314.15, while the blue-chip CSI300 index ended up 2.98%.

** The start-up board ChiNext Composite index was higher by 1.31%.

** Leading the gains, the CSI300 financials index jumped 4.3% after the state regulator lifted equity investment cap for insurers.

** China’s banking and insurance regulator said it was raising the cap on how much the country’s insurers can invest in equity assets, an effort trying to bring more long-term funds into the capital market.

** “The raising of equity investment cap for insurers will have an evident positive impact for the short term by bringing fresh money into the stock market,” said Zheng Zichun, an analyst with AVIC Securities.

** Securities firms also gained, with the CSI SWS securities index ending up 5.2%, as the regulator encouraged M&As in the industry.

** “The rally in the stock market is something regulators need, as it could reduce China’s domestic social pressure given the economic difficulties brought by the coronavirus outbreak,” the analyst said.

** Monday’s gains followed Shanghai shares’ worst weekly drop in five months as better-than-expected GDP data in China fuelled worries over the pace of policy easing.

** The recent correction by Friday had wiped out nearly 3 trillion yuan ($429.13 billion) off the market capitalization of Shanghai stocks, according to data from the Shanghai Stock Exchange.

** Analysts, however, said the rally was yet to be over, thanks to the country’s economic recovery, continued policy support and market reforms.