Shanghai stocks flirted with fresh 10-year highs while Hong Kong shares climbed on Monday, supported by Alibaba after the e-commerce giant reported strong AI-driven growth, fuelling investor confidence in Chinese innovation.

The benchmark Hang Seng Index strengthened by 539 points, or 2.15 percent, to end trading for Monday at 25,617.

The Hang Seng China Enterprises Index rose 1.95 percent to close at 9,121 while the Hang Seng Tech Index increased 2.2 percent to finish at 5,798.

Across the border, the benchmark Shanghai Composite Index rose 0.46 percent to 3,875 while the Shenzhen Component Index closed 1.05 percent higher at 12,828.

The combined turnover of these two indexes stood at 2.75 trillion yuan, down from 2.8 trillion yuan on Friday.

Shares of innovative-drug makers and memory-chip manufacturers rallied sharply, while insurance, securities and banking stocks suffered major losses.

The ChiNext Index, tracking China's Nasdaq-style board of growth enterprises, gained 2.29 percent to close at 2,956.

Sentiment on the mainland was also aided by regulators' pledge to consolidate the "good trend" of the stock market, which jumped 10 percent in August in its best month in almost a year.

The Shanghai Composite Index closed 0.5 percent higher while the blue-chip CSI300 Index gained 0.6 percent.

Hong Kong's gains were driven by a 19 percent surge in index heavyweight Alibaba, after the tech company said artificial intelligence was key to the growth of its cloud computing business.

China Europe Capital chairman Abraham Zhang said that Alibaba's progress in AI, including its breakthrough in AI chips, "will have far-reaching implications to China's entire AI value chain" and represents a "watershed moment" for the industry.

Market gains were also supported by growing expectations of a US interest rate cut this month.

China's CSI AI Index rose 2.7 percent to a record high on Monday, while Shanghai's STAR Semiconductor Index jumped 3 percent.

Bets on homegrown chipmakers were also strengthened by news that the United States is making it more difficult for chipmakers Samsung and SK Hynix to produce chips in China by imposing curbs on exports of US equipment.

Biotech shares also jumped on growing optimism about Chinese innovation.

Banking shares softened, after China's major state-owned banks warned that net interest margins will face increased pressure for the rest of the year. (Reuters/Xinhua)