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China's shares closed 1.9 percent higher Thursday as investors built heavy positions in bank stocks following news of a flurry of actual and potential foreign investment in domestic lenders.

Among the latest, top forex lender Bank of China said Wednesday it would sell a 10 percent stake to Singapore’s state investment agency, Temasek Holdings, for US$3.1 billion.

The benchmark Shanghai Composite Index rose to close at 1,184.933 points, buoyed by improved investor confidence on signs of strong mutual fund sales, and a rally by top oil refiner Sinopec Corp. Sinopec closed 0.9 percent higher at 4.45 yuan (US$0.55) on strong global oil prices, analysts said.

Banks led the way Thursday, with most of the five listed lenders among the 10 most active stocks.

Minsheng Banking Corp., China's first private bank, jumped 3.5 percent to 5.69 yuan.

“Increasing foreign investment in banks has boosted investor confidence in the sector,” said Qian Qimin at Shenyin & Wanguo Securities.

“But recent gains on the stock market were mainly propelled by speculative money, and room for further increases should be limited.” Analysts said the benchmark index could meet resistance at the psychologically important 1,200-point level.

The index is still down 6.4 percent since the start of 2005, but it has surged 16 percent since China revalued its yuan currency July 21.

Biggest listed lender China Merchants Bank closed 1.8 percent higher at 6.87 yuan, Huaxia Bank added 2.7 percent at 4.25 yuan, Shanghai Pudong Development Bank rose 1.7 percent at 8.62 yuan and Shenzhen Development Bank climbed 1 percent at 6.29 yuan.