n Monday -- the benchmark's sharpest decline since an 8.8-percent drop Feb. 27 triggered a global market sell-off.

The Shenzhen Composite Index for China's smaller second market rose 2.5 percent to 1,066.05.

Prices rebounded as investors returned to snap up bargains, analysts said.

''It is still a bull market. After five days of declines, I think it's time for the market to bounce back,'' said Chen Huiqin, an analyst at Nanjing-based Huatai Securities Co.

The Shanghai index had fallen three of the last five days.

European share markets gained in early trading and Asia markets also were generally higher, with Japan's benchmark index climbing 0.5 percent and Hong Kong shares also up 0.5 percent.

Chinese investors had dumped shares Friday and Monday in reaction to a government decision last week to triple a tax on stock trades. The move was taken as a signal regulators are determined to cool frenzied trading that had lifted stock prices nearly 60 percent since the start of the year, following a 130 percent surge in 2006.

By Tuesday's close, the benchmark Shanghai index was 13 percent below its record high of 4,334.92, hit May 29. But it was still up 40 percent for the year.

Financials were among the gainers. China Minsheng Banking Corp. rose 3 percent to 12.47 yuan, China Merchants Bank Co. climbed 2.6 percent to 21.49 yuan and Shanghai Pudong Development Bank was up 1.1 percent at 32.79 yuan.

China's stock markets are largely closed to foreign investors. Analysts attributed the sell-off Monday to panic-selling by individual retail investors.

The stock market boom has prompted millions of first-time investors to jump into the market, tapping savings and retirement accounts and mortgaging homes to buy stocks. Authorities are worried that the new money is fueling a bubble in prices.

Shifting to damage control, on Tuesday state-run newspapers carried prominent articles announcing the approval of four new investment funds.

Financial newspapers sought to reassure investors, asserting that the tax hike on stock trades would help the markets by encouraging longer-term investments in better stocks.

International stock markets have shrugged off the declines in mainland Chinese declines. Most Asian markets rose Monday, and Wall Street also eked out gains.

Economists say the recent fall in Chinese prices should have only a modest impact on the overall economy because China's growth is driven by exports, not the financial markets, and families have still much more money in savings than in shares.

In currency trading, the Chinese yuan gained against the U.S. dollar after its official rate was set at its highest level ever Tuesday morning.

The dollar was trading at 7.6423 the over-the-counter market, down from Monday's close of 7.6512. It dipped as low as 7.6419, its lowest level since the current trading system was set up in July 2005.