SHANGHAI stocks are expected to rebound early this week and stay in an upward trend after the central government launched measures to boost the market, and analysts suggested investors may seek undervalued blue chips.

The State Council last week cut the stamp duty on stocks from 0.3 percent to 0.1 percent after the Shanghai Composite Index touched 3,000 points, which boosted the gauge to jump 9.29 percent on Thursday.

The China Securities Regulatory Commission on April 19 also announced stricter rules on the sale of previously non-floating shares to avoid a huge influx of fresh equities into the market.

"The moves indicated that 3,000 should be the bottom for the near future but cutting (stamp) tax can improve corporate quality and raise their investment value," said Qian Qimin, an analyst at Shenyin & Wanguo Securities Co.

He expects the index to move between 3,500 and 3,700 this week and said investors should focus on undervalued blue chips.

The key index, which tracks yuan-denominated A shares and hard-currency B shares, rose 15 percent last week to close at 3,557.75 points.

Zhang Li, an analyst at Huatai Securities, said that profit taking may prevent the index from rising rapidly and the market may require more positive policies. He said the index will range between 3,500 and 3,800 this week and recommended finance and non-ferrous metal stocks.

The China Securities Regulatory Commission may allow brokers to lend capital or stocks to retail investors when needed, said the China Securities Journal.