Investors watch the share prices at a stock brokerage firm in Shanghai, east China, Dec. 4, 2008.

BEIJING, Dec. 4 (Xinhua) -- Chinese stocks extended gains on Thursday pushing the key Shanghai index just over 2,000 points following government decision to encourage commercial banks to grant more loans to stimulate the economy and stabilize the stock market.

Heavyweight insurers, banks and oil companies led the charge.

The benchmark Shanghai Composite Index closed at 2,001.50 points, up 1.84 percent or 36.09 points. The smaller Shenzhen Component Index added 89.87 points, or 1.28 percent, to close at 7,130.93.

Losers outnumbered gainers by 454 to 383 in Shanghai and by 460to 254 in Shenzhen. Combined turnover was up to 179.94 billion yuan (26.3 billion U.S. dollars), in comparison to Wednesday's 132.78 billion yuan.

Turnover on the major Shanghai stock exchange stood at 122.82 billion yuan. It was the largest daily turnover in Shanghai since May 9 of this year. Turnover at Shenzhen was 57.12 billion yuan.

On the previous trading day, Chinese shares rallied. The key Shanghai index jumped 4.01 percent led by gains in the banking and oil sectors.

On Thursday, shares on the key Shanghai index opened 1.39 percent higher following Wednesday's meeting of China's State Council, or the Cabinet. The government decided to encourage commercial banks to grant more loans to stimulate the economy and stabilize the stock market.

After the opening, the key index continued to climb until it reached the day's highest level of 2,055.21 points in the afternoon session. After 2:00 p.m., the index retreated quickly as investors' profit-taking pared earlier gains.

Shares of heavyweight insurers, banks, securities firms and oils led the gains.

Securities firms gained most. Guojin Securities and Changjiang Securities, advanced by the daily maximum of 10 percent. Guojin ended at 26.38 yuan while Changjiang at 10.99 yuan.

Citic Securities, the largest securities firms measured by market value, rose by the least margin, only 2.92 percent, to finish at 21.51 yuan.

Banks continued to put up a positive performance after the media reported the Central Huijin Investment Co., Ltd., an investment arm of the sovereign wealth fund of the China Investment Corporation, purchased more shares of China's top three banks via the secondary market on the Shanghai and Shenzhen bourses.

The three banks are Industrial and Commercial Bank of China (ICBC), China Construction Bank (CCB) and Bank of China (BOC).

CCB climbed 3.06 percent to 4.38 yuan. ICBC, the country's largest lender, rose 2.33 percent to 3.96 yuan. BOC added 1.55 percent to finish at 3.28 yuan.

Smaller commercial banks also gained. Shanghai Pudong Development Bank rose 3.57 percent to 13.36 yuan, while China Merchants Bank advanced 2.88 percent to 12.85 yuan.

Insurers extended gains on Wednesday. Heavyweight China Life, the nation's leading life insurer, advanced 5.4 percent to 19.92 yuan, while Ping An Insurance jumped by 7.52 percent to close at 25.75 yuan.

Oils gained significantly and helped shore up the indices. PetroChina, the largest component of the key Shanghai index, rose 1.84 percent to 11.61 yuan. Sinopec added 5.8 percent to 8.75 yuan.

Guangfa Secutiries analysts, quoted on the financial website Hexun.com, markets were faced with increasing sell-off pressure inthe middle of Thursday's trading session after the indices rose nearly 10 percent since Monday. Profit-taking led to the significant retreat in the day.

The upward trend of the market remained unchanged, but there would be some minor adjustments in the near future, analysts added.