An investor smiles in a brokerage in Zhejiang, Hangzhou province, on Jan 21, 2014. [Asianewsphoto by Long Wei]

Chinese stocks rallied for a second day from the biggest drop in seven years as concerns about margin trading restrictions eased.

The benchmark Shanghai Composite Index soared 4.7 percent and closed at 3,323.61 on Wednesday, led by financial companies, while Shenzhen Component Index advanced 3.4 percent to 11,372.18.

Banking and brokerage sectors rebounded from the sharpest slide since 2008, with Bank of China and Haitong Securities jumping to the daily limit of 10 percent. Ningbo Bank, Huaxia Bank, Merchants Securities, Huatai Securities, Sealand Securities and CITIC Securities advanced more than 6 percent.

The loss on Monday followed an announcement by securities watchdog, China Securities Regulatory Commission, that there will be punishment for con-complaint margin trading activities. Haitong, CITIC and Guotai Junan Securities were suspended from lending money and stocks to new clients for three months.

Deng Ke, spokesman for China Securities Regulatory Commission, denied speculation that the authority intended to suppress the stock market with negative news after the market closed. The Shanghai index rebounded 1.8 percent on Tuesday.

Energy stocks edged up on Wednesday, as oil magnets PetroChina and Sinopec gained 7.3 and 4.4 percent respectively, and SDIC Power and Shenzhen Nanshan Power jumped more than 5 percent.

According to data released by the National Bureau of Statistics said on Tuesday, China's economy grew by 7.4 percent in 2014, registering the weakest growth in 24 years but in line with market expectations.

The CSI 300 Index gained 4.5 percent on Wednesday and closed at 3,548.89.