China's stock market rose by the most in seven weeks on Monday on promises of financial reform.

The Shanghai Composite Index made the biggest advance since March 21, surging by 2.08 percent to close at 2052.87 after the State Council promised late on Friday to allow local governments to issue bonds and to streamline the approval process for IPOs, or initial public offerings.

The Shenzhen Component Index gained by 2.17 percent, or 155.7 points, closing at 7,318.14. Combined turnover was 176.1 billion yuan ($28.58 billion).

The two exchanges saw 192 shares rise by more than 5 percent, while only three shares hit the daily decline limit of 10 percent.

The guideline on capital market reform, which updates those published in January 2004, states that by 2020 China should have set up a multi-layered capital market system. This should be regulated, transparent, stable, highly efficient and have an appropriate structure as well as comprehensive function.

The guideline specifically encourages direct financing, a registration-based IPO system, further opening up of the capital market to foreign investors, and developing a system for local governments to issue bonds directly.

Goldman Sachs said in a report on Monday that as Chinese authorities push forward capital market reform, brokerages will benefit from increased income by expanding business on debt capital markets, fixed income, prime brokerages, derivative, and offshore wealth management products. This may offset the pressure caused by upgraded competition.

However, analysts appeared cautious.

"The updated guideline may have strengthened investors' confidence, although it is actually a long-term programmatic document that has limited influence over short-term market performance," said Yang Delong, chief strategist at China Southern Asset Management.

As for concerns over IPOs draining liquidity from the A-share market, analysts said the pressure had already been priced in.

A total of 557 companies were awaiting IPO approval as of Friday.

xieyu@chinadaily.com.cn