Mainland and Hong Kong stocks closed lower on Thursday after the Shanghai market touched a three-and-a-half year high as investors locked in gains following the recent bull run.

In Hong Kong, the benchmark Hang Seng Index ended down 94 points, or 0.37 percent, to close at 25,519.

The Hang Seng China Enterprises Index fell 0.23 percent to end at 9,128 while the Hang Seng Tech Index fell 0.97 percent to close at 5,576.

Market heavyweight Tencent briefly touched HK$600 per share for the first time since 2021, after reporting a 15 percent revenue rise in the last quarter on strong gaming performance.

On the mainland, the benchmark Shanghai Composite Index closed trading for the day down 0.46 percent at 3,666, after briefly topping the 3,700 level for the first time since December 2021.

The decline also snapped a three-day winning streak and marked the biggest pullback in two weeks.

The Shenzhen Component Index closed 0.87 percent lower at 11,451.

The combined turnover of these two indexes was 2.28 trillion yuan, up from 2.15 trillion yuan on Wednesday.

Financial shares led gains while stocks related to textile machinery and ceramics suffered major losses.

The ChiNext Index, tracking China's Nasdaq-style board of growth enterprises, lost 1.08 percent to close at 2,469.

"I think the overall market is still trending upward, though there might be a bit of a correction, which actually is a good thing because it makes the movement healthier," said Kevin You, deputy portfolio manager of Allianz China A-Shares Equity Fund.

The steel sector dropped 2.1 percent and the communications sector lost 2.2 percent to weigh on the markets.

Offsetting the losses, the tech-focused Star50 index was up 0.8 percent, the semiconductor index jumped 1.5 percent and the insurance sector jumped 2.3 percent.

Citi analysts said Beijing's incremental demand-side stimulus has been well on track following the Politburo meeting in July, as measures such as the interest subsidy for consumption loans, the mega dam project in Tibet and an "anti-involution" campaign have all helped sentiment.

"Risk appetite seems to be returning" with margin buying surpassing two trillion yuan last seen in the 2015 bull market, and external risks could be largely defused for now with the US-China tariff truce officially extended to mid-November, they said. (Reuters/Xinhua)