China stocks rebound, huge capital stands by

China's stocks rebounded on Friday and are expected to rise further as huge capital stands by and market confidence recovers.

The benchmark Shanghai Composite Index, which tracks the performance of most market heavyweights, rebounded 2.26 percent to close at 3,744.2 points. The smaller Shenzhen Component Index gained 2.67 percent to close at 12,753.05.

The ChiNext Index, tracking China's Nasdaq-style board of growth enterprises, surged 3.87 percent to end at 2,576.99.

Turnover on the Shanghai bourse largely expanded to 894.3 billion yuan (146.19 billion U.S. dollars) from Thursday's 357.5 billion yuan.

About 200 shares hit the 10-percent daily rise limit. The sectors of payment, big data, software and shipping led the increases.

Shanghai Securities News reported on Friday that nearly 300 funds had taken short positions, leaving over 2 trillion yuan standing by.

That capital included five products valued at a combined 200 billion yuan belonging to China Securities Finance Corporation, the national margin trading service provider for securities brokers.

The report said most of the funds posted a change in their net value of less than 1 percent on July 27, when the stock market saw its sharpest falls since 2007, suggesting they are in short positions now the market has rebounded.

Fund managers believe that as confidence recovers, the stand-by capital will fuel China's stocks market.

Meanwhile, foreign investors have been increasing their holdings as some Western economists praised the Chinese government's regulatory measures to arrest the recent stock market plunge.

Stephen Roach, a senior professor of economics at Yale University, said that China's central bank had played a positive role in regulating to aid recovery, rather than blindly providing liquidity.

The measures like reducing the number of IPOs and banning short-selling also minimized the possibility of triggering financial risks in other economies, he said.

Catherine Yeung, investment director of Fidelity Investment, said it was common practice for other economies to regulate their stock markets in times of turbulence.