Chinese shares rebounded by more than 3 percent on Wednesday after an earlier-than-expected U.S. rate cut overnight eased concerns about a declining U.S. economy.

The benchmark Shanghai Composite Index, which covers both A and B shares, climbed 143.3 points, or 3.14 percent, to 4,703.05.

The Shenzhen Component Index finished up 878.46 points, or 5.49percent, at 16,874.32.

Gains led losses by 719 to 72 in Shanghai and 560 to 48 in Shenzhen. Aggregate turnover shrank to 215.5 billion yuan (29.5 billion U.S. dollars) from 232 billion yuan on Tuesday.

Neighbouring markets also recovered from losses. Japanese share prices ended a two-day drop to close up 2.04 percent on Wednesday. Australian shares rose 4.4 percent, ending a 12-day losing streak. Hong Kong stocks rebounded by more than 8 percent in afternoon trade. European markets were also expected to open higher on Wednesday.

The U.S. Federal Reserve slashed the benchmark federal funds rate by 0.75 percentage point to 3.5 percent, in an emergency attempt to ward off rising fears of U.S. recession. The rate cut has prompted the U.S. dollar to fall sharply against other major world currencies.

China's currency, the yuan, rose sharply against the U.S. dollar on Wednesday. The central parity rate of the yuan jumped by206 basis points to 7.2350 yuan to 1 U.S. dollar, according to China Foreign Exchange Trading System.

The sharp appreciation prompted the yuan to hit the highest level after it was revalued with the ending of its peg to the U.S. dollar in July 2005. To date, it has appreciated more than 12 percent against the greenback.

Banks and insurance companies led Wednesday's rise. China Pacific Insurance (group) Co. rose more than 6 percent to 39.2 yuan. China Merchants Bank was up 4.55 percent to 36.73 yuan. The smaller Bank of Beijing went up 4.25 percent to 18.4 yuan.

Bank of China, however, dipped 2.88 percent to 6.07 yuan despite it denied reports of losses due to U.S. subprime exposure on Tuesday.

High tech sectors also rose partly on the news that Shenzhen is due to get a NASDAQ-like growth enterprise board in the first half of 2008 which intended to help small start-ups, especially high-growth, high-tech firms, to raise funds. Founder Technology and China Unicom both rose by the daily limit of 10 percent.

Editor: Yan