China stocks, catching up after holiday break, touch 21-month highs

SHANGHAI (Reuters) - China's major stock indexes touched 21-month highs on Monday following a week-long holiday, boosted by a coming cut in banks' reserve requirement ratio and last week's stellar performance in global equity markets.

The blue-chip CSI300 index rose 1.2 percent, to 3,882.21 points, while the Shanghai Composite Index gained 0.8 percent to 3,374.38 points.

At one point, the CSI300 was up 2.1 percent. The indexes pared their gains in the afternoon on profit-taking amid questions on whether solid advances in heavyweight financial firms would be sustainable.

Sectors rallied across the board, with gains led by banking and real estate stocks, as investors responded to the central bank's targeted reserve requirement rate cut, to be effective next year, to boost lending to small firms.

The banking index jumped as much as 4.1 percent but ended 1 percent higher. The property index also climbed 1 percent.

The central bank said the targeted RRR cut does not change the general direction of its prudent monetary policy.

Most analysts agreed it does not represent a policy loosening, but investors still expect the additional liquidity will be good news for stocks and possibly other assets such as real estate.

Investors' pent-up euphoria after the long holiday was only slightly affected by a disappointing private survey on China's service sector in September. Helping lift optimism was data that the average daily sales of retailers increased 10.3 percent during the eight-day National Day holiday.

Also aiding China shares was catch-up with global markets, which surged while Chinese markets were shut.

Investors largely ignored a private survey showing business activity in China's services sector grew at its slowest pace in 21 months in September as the pace of new business cooled.

($1 = 6.6348 Chinese yuan)

(Reporting by Luoyan Liu and John Ruwitch; Editing by Richard Borsuk)