All 16 banking shares listed on the Shanghai and Shenzhen markets rose, led by Bank of Communications, which was among the most active issues on the Shanghai market, up 4.3 percent. Hua Xia Bank rose 4.3 percent.
"The Shanghai index was boosted by bank shares," said Nanjing Securities analyst Wen Lijun. "But we think blue chips may also face correction pressure in the near term as they have risen for a quite long time."
The Shanghai Composite Index breached the key 3,000 resistance level, closing up 1.1 percent to 3001.4, its highest level since March 9, extending a 1.3 percent rise last Friday. The markets were closed on Monday and Tuesday for the Tomb Sweeping Festival.
Following the strong banking shares, the shares of securities houses also outperformed, as the Industrial Securities jumped to its 10 percent daily limit and Haitong Securities rose 2.3 percent.
An official with the Chinese central bank said on Wednesday that liquidity in the country's financial markets remained excessive, making its fight against inflation difficult.
But some analysts said that investors were still concerned over high inflation, which was expected to hit 6 percent in the coming month, preventing any relaxation of monetary tightening.
"The March inflation figure must be very high, for which the central bank has to increase interest rates." said Xu Biao, economist with China Merchants Bank in Shenzhen. "More importantly, it is not the end of China's monetary policy tightening."
PROFIT TAKING ON OVERBOUGHT HK MAJORS
Hong Kong's benchmark Hang Seng Composite Index finished up 0.6 percent to 24,285.1 on Wednesday, extending a four-session winning sterak as it climbed to levels last seen in January, although trading remained rangebound.
"This rate rise didn't come as a surprise. Market sentiment remains quite bullish," said Wing Fong Financial Group analyst Mark To. "People are not going to dump their stocks now, they are waiting for further upside."
Some Chinese property, energy and financial counters underperformed the broader market in Hong Kong as investors took profit on overbought stocks, but analysts said the broader uptrend for the sectors remained intact.
CNOOC Ltd, technically overbought with a relative strength index (RSI) value of 75.9, lost 3.4 percent. China Overseas Land & Investment Ltd, overbought with an RSI value of 70.1, recovered from a 3.5 percent decline in the morning to close down 2.8 percent.
Analysts expect trading to be range-bound this week, citing 24,800, the Hang Seng's January peak, as the next resistance point, with support seen at 23,400.
Some analysts said a low dollar and yen would encourage fund flows into Hong Kong, something they have noticed, with the Hong Kong dollar strengthening steadily since March 30.
HSBC Holdings Plc, Bank of China Ltd and Chinese insurers, China Life Insurance Co Ltd and Ping An Insurance (Group) Co of China Ltd were among leading gainers in Hong Kong on Wednesday.
"With around 80 percent of total investment assets invested in interest rate sensitive products, such as bonds...bank deposits and cash, the life insurers are well positioned to benefit from rate rises," Barclays Capital said in a research note sent on Wednesday.