The market sentiment was driven up by nonferrous metal, liquor, rare resources and cement sectors in the later session.

The benchmark Shanghai Composite Index rose 30.26 points, or 0.68 percent, to close at 4,471.03 points on a daily transaction volume of 152.269 billion yuan (20.1 billion U.S. dollars).

The key index moved between 4,379.20 points and 4,476.63 points.

The Component Index on the Shenzhen Stock Exchange went up 138.70 points, or 0.92 percent, to end the day at 15,199.56 points with a turnover of 83.896 billion yuan.

The People's Bank of China, the central bank, announced on Monday afternoon that it will raise the reserve requirement ratio by 0.5 percentage points to 12 percent for commercial banks from Aug. 15.

The central bank said the move was aimed at "strengthening management of liquidity in the banking system and rationalizing lending growth".

This is the sixth time China has raised the reserve requirement ratio to curb excess liquidity, following an interest rate hike announced last Friday in which China raised the one-year benchmark deposit and lending rates by 27 basis points to 3.33 percent and 6.84 percent respectively.

Meanwhile, the State Council, or cabinet, has decided to reduce tax on the interest on personal bank savings from 20 to five percent from Aug. 15.

However, Song Guoqing, an economist with Beijing University believed "half a percentage points is not enough", and all of the measures "just can't catch up with the overshooting economy." "So there will be more policies coming out," he predicted.

Observers said a great number of metal and resources stocks, which are expecting disclosure of good interim earnings, would likely help shore up the mood on capital markets.

They believed the bullishness of A-share market was based on appreciation of Renminbi, better-than-expected interim earnings for listed companies, rapid but stable growth of Chinese economy and excess liquidity. The new hike in reserve requirement ratio can only affect commercial banks' incentive for expanding credit extension, but can do little to bite off the excessive liquidity.

On Tuesday, there were 509 gains and 331 losses on the Shanghai bourse and 349 gains and 237 losses on the Shenzhen stock exchange.

The Hushen 300 Index, which tracks 300 companies on the Shanghai and Shenzhen stock exchanges, closed at 4,460.56 points, up 50.26 points, or 1.14 percent, from the previous close.