SHANGHAI, June 15 — China's stock markets rose the most in nearly four months on Thursday, after the central bank cut the borrowing cost of its medium-term policy loans for the first time in 10 months to aid a shaky economic recovery, while investors expected more stimulus is on the way.

China's benchmark CSI 300 Index saw its biggest jump since Feb. 20 by closing up 1.6 per cent, while Hong Kong's Hang Seng Index ended 2.2 per cent higher.

Data today showed China's economy stumbled in May, with industrial output and retail sales growth both missing forecasts, adding to expectations that Beijing will have to quickly ramp up stimulus to shore up a shaky pandemic recovery.

The People's Bank of China (PBOC) said it lowered the rate on 237 billion yuan (US$33.1 billion) of one-year medium-term lending facility (MLF) loans CNMLF1YRRP=PBOC to some financial institutions by 10 basis points to 2.65 per cent in line with market expectations.

"Weak activity data means that this is probably not the end of the stimulus," said Robert Carnell, regional head of research, Asia-Pacific at ING.

Investors were also encouraged by the US Federal Reserve hitting the pause button on rate hikes overnight, and Asia-Pacific shares outside Japan .MIAPJ0000PUSgained on the news.

Markets are closely watching developments on the geopolitical front. US Secretary of State Antony Blinken is expected to visit Beijing next week amid tensions between two countries, although the US played down expectations of any breakthrough from the trip.

Foreign investors resumed purchasing Chinese equities on Thursday via the Stock Connect after four days of net sell-offs. They bought a net 9.2 billion yuan.

Stocks in new energy .CSI399808soared 5 per cent to lead gains, while consumer discretionary .CSIASCDI, healthcare .CSIHCSI and automobiles .CSI931008 climbed more than 2 per cent each.

In Hong Kong, mainland developers .HSMPI advanced 3.5 per cent as data showed a slower rise in China's new home prices in May, raising the prospect of more easing.

Hong Kong-listed tech giants .HSTECH finished up 3.6 per cent, with Meituan 3690.HK and Alibaba 9988.HK jumping 7.8 per cent and 4.5 per cent, respectively.

"Looking forward, the market hopes for more supportive policies to stimulate consumption. Another positive catalyst for Chinese equities would be increased communication between the U.S. and China," said Jian Shi Cortesi, investment director of China equity funds at GAM Investments. — Reuters