(Adds analyst comments)
SHANGHAI, Nov 28 (Reuters) - China stock indexes rose for the seventh straight session on Friday and posted their biggest monthly gains in nearly two years, led by banking shares on speculation that a deposit insurance scheme would be unveiled soon.
A surprise interest rate cut last week to boost the flagging economy and hopes of further policy easing have also re-ignited demand for Chinese shares.
The CSI300 index of the largest listed companies in Shanghai and Shenzhen rose 2.0 percent to 2,808.82 points, the highest level since September 2011.
The Shanghai Composite Index also gained 2.0 percent to 2,682.83, its highest since August 2011.
For the month, the CS1300 was up 12 percent while the SSEC gained nearly 11 percent, the biggest monthly gain since December 2012.
Bank shares led the gains after reports on Thursday that the central bank had could soon announce the draft rules for the introduction of an insurance system to protect depositors in case a bank fails.
Chen Xingyu, a banks analyst at Phillip Securities (Hong Kong) Limited, said a deposit insurance scheme would entice more people to park their savings at banks.
Shares of Agricultural Bank of China rose 6.3 percent, China Everbright Bank jumped by its 10 percent daily limit and China Minsheng Banking Corp rose 8.6 percent.
Banking shares had risen modestly by midday and the gains accelerated in the afternoon session. One analyst said the deposit insurance factor was also being used as an excuse to pick up shares that were seen to be undervalued.
In Shenzhen, Ping An Bank gained by 10 percent.
Many analysts believe China needs to protect its savers before it can liberalise its interest rate market and give banks the freedom to set their own their deposit rates - a move which could lead to tougher competition between banks possibly leading to failures, especially among smaller banks.
However, technical indicators show the main stock indexes are overbought, which could leave them vulnerable to profit-taking in the near-term. (Reporting by the Shanghai Newsroom and Engen Tham; Writing by Kazunori Takada; Editing by Richard Borsuk & Kim Coghill)