"First-half earnings growth has been part of the reason for the market's gains," said Zhang Han, a strategist at Guotai Junan Securities Co. in Shanghai. "The U.S. is likely to use QE3 to pour liquidity into global capital markets."

The Shanghai Composite Index, which tracks the bigger of China's stock exchanges, jumped 74.2 points, or 2.9 percent, to 2,615.26 as of the 3 p.m. close, the most since Oct. 15. The CSI 300 Index gained 3.3 percent to 2,903.84.

The Shanghai gauge is valued at 12 times estimated earnings, compared with a record low of 11.57 times set on Aug. 22, according to data compiled by Bloomberg. It has lost 6.9 percent this year as the central bank raised interest rates five times and ordered lenders to set aside more cash as deposit reserves 12 times since the start of 2010 to contain inflation that quickened to 6.5 percent last month, the fastest pace in three years.

Eoin Treacy's view The Chinese monetary authorities have been largely focused on attempting to contain speculative interest in the housing market while preserving economic growth. Many of the regulatory impediments have weighed more on the stock market than the property market. Higher bank reserve requirements are one example. The scheduled release of the government's non-tradable shares had also, until recently, been an additional headwind.

The strong corporate profits reported in the above article suggest the economy has come through the tightening period reasonably well. With valuations close to levels where important rallies have begun previously any significant move to loosen monetary policy could act as a catalyst for the stock market to return to a position of outperformance.

The Shanghai A-Shares Index found at least short-term support near 2600 on August 8th and continues to hold above that level. A sustained move back above 3000 would break the almost two-year progression of incrementally lower rally highs and signal a return to medium-term demand dominance.