SHANGHAI - Despite a sharp rebound on Thursday after the central bank cut reserve ratio requirements (RRR), analysts and investors remain skeptical about the longer-term prospects for Chinese equities.

The Shanghai Composite Index rose 2.3 percent, reversing much of the 3.3-percent drop on Wednesday, which was the biggest one-day fall in four months.

Hong Kong stocks surged 5.63 percent, with the benchmark Hang Seng Index closing at 19,002.26 on volume of HK$97.15 billion ($12.5 billion).

The People's Bank of China (PBOC) announced after the market closed on Wednesday that it would cut the amount of money banks hold against loans by 0.5 percentage point, the first reduction since 2008, after six increases this year to curb credit growth and tame inflation.

The move was seen by some investors as a sign of credit easing that would benefit investments.

"The rally is more of a mood swing by investors and has few real fundamentals ... the stock market remains in a state of flux," said Zhang Qi, a Shanghai-based analyst with Haitong Securities Co Ltd.

Market prospects, he said, are clouded by economic uncertainties, which were brought to the forefront by the latest indicator showing a decline in industrial activity.

On Thursday, the November purchasing managers' index was released, showing China's manufacturing sector contracted.

Together with an expected drop in fixed-asset investment, many economists have lowered GDP growth expectations to slow to about 8 percent.

The mood of individual investors seems even darker.

"Lowering the reserve requirement ratio is only aimed to help the banks. It's only temporary, you never know what the government will do next," said 56-year-old Wu Yan, a retired doctor who has more than 10 years of experience investing in the stock market.

"It might be good for the banks, but not the stock market."

Analysts interviewed by China Daily split on whether the PBOC's loosening will continue.

Qu Hongbin, HSBC Holdings PLC's chief economist in China, expects the RRR to be cut three times totaling 1.5 percentage points in the first half of 2012.

The chief economist at Southwest Securities Co Ltd, Wang Jianhui, expects the RRR to be lowered every two and a half months.

But Tian Yuan, with Bank of America Merrill Lynch, believes the loosening is only temporary and monetary policy could change direction at any time as overall liquidity is still ample.

The inventory subindex of the PMI inched up 2.8 points to 53.1. Lu Zhengwei, chief economist with Industrial Bank Co Ltd, said the increase bodes ill for the economy.

"The increase in inventories means industrial growth faces a sharp decline in the near future," said Lu in an e-mail.

However, UBS AG is more optimistic. Chen Li, its Shanghai-based head of China equity strategy, sees a gain of up to 30 percent for the benchmark index next year.