An investor is seen at a stock exchange in Hangzhou, east China's Zhejiang Province, Oct. 22, 2018. Chinese stocks closed higher Monday, with the benchmark Shanghai Composite Index up 4.09 percent to close at 2,654.88 points. The Shenzhen Component Index closed 4.89 percent higher at 7,748.82 points. (Xinhua/Long Wei)

BEIJING, Oct. 22 (Xinhua) -- Chinese stocks surged Monday after policy makers moved to boost confidence in the stock market and pledged to enact measures to ensure its healthy development.

Extending Friday's rebound, the benchmark Shanghai Composite Index on Monday rallied 4.09 percent to 2,654.88, the largest daily increase in 31 months.

This came after concerted efforts by heavyweight economic officials to ease domestic investor concerns about the national economy and the "abnormal fluctuations" on the financial markets.

Vice Premier Liu He told reporters Friday that many factors had caused obvious stock fluctuations and declines in China recently, including interest rate hikes by the central banks of major economies and Sino-U.S. trade frictions.

"The psychological effect is bigger than the actual impact," Liu said, mentioning the impact of Sino-U.S. trade frictions on the stock market.

He said the corrections and sell-offs were "creating good investment opportunities" for the long-term and healthy development of the stock market.

The country's stock market has tumbled this year, with the key Shanghai index down more than 20 percent from its January peak of 3,523 points.

"Current stock market valuation has been at a relatively low level in history, which is in contrast to the country's stable and positive economic fundamental," said Yi Gang, governor of the People's Bank of China.

Bucking a downturn on the stock market, the country's economy remained on solid footing, expanding 6.7 percent in the first nine months of the year and on track to achieve the government's target of around 6.5 percent for 2018.

Guo Shuqing, chairman of the China Banking and Insurance Regulatory Commission (CBIRC), said the financial market swings had been "abnormal" and "seriously out of line with the fundamentals of China's economic development and inconsistent with the overall stability in China's financial system."

Guo said more policies will be unveiled to bring the financial markets back on the track of "normal and healthy development."

The CBIRC is seeking feedback on a draft plan to allow funds from products publicly sold by commercial banks' wealth management subsidiaries to be directly invested in stocks.

Currently, only funds raised from privately sold bank wealth management products can be directly invested in the stock market.

Guo also urged financial institutions to properly handle risks from equity pledge financing, in an effort to soothe concerns that falling stock prices might trigger a downward spiral of forced liquidation.

Listed firms, capital-starved small and medium-sized enterprises, in particular, use their equities as collateral for loans. The pledged equities will get liquidated and further drag the market down when their prices fall below critical levels unless borrowers add collateral to cover the declining value or repay the loans.

When a company's share prices fall to near the alarming line, financial institutions should not rush to activate forced liquidation, but properly handle it according to the company's development prospects and fundamentals, a CBIRC official told Xinhua.

To bolster the stock market, the country is also mulling rules to make it easier for listed firms to buy back their shares, which could help firms stabilize their share prices.

According to Liu Shiyu, chairman of the China Securities Regulatory Commission, draft amendments to relevant laws have been delivered to the country's top legislature for review.

More policies are expected to be rolled out as a Saturday meeting of the financial stability and development committee under the State Council emphasized the need to give full play to the key role of the capital market.