SHANGHAI, June 4 (Reuters) - China's stock market went on a dramatic roller-coaster ride on Thursday, with an after-lunch meltdown spurring a wave of fresh buying that produced gains for the day instead of a sharp loss.
The wild swing - at one point 3.4 trillion yuan ($548 billion) of market capitalisation had been wiped out - came one week after the market plunged more than 6 percent.
And it underscored increasing volatility in the high-flying, and highly-leveraged, China market.
The pattern of abrupt falls being followed by a quick rebound has become a "new normal" for China, said Hong Hao, chief China strategist at Bank of Communications Co.
"Many investors are holding cash on the sidelines, so when they see tumbles like this, they jump in," he said.
"The upward trend is not changed," Hong said, advising investors to buy small on dips, and buy big on a slump.
The Shanghai Composite Index, down 5.3 percent at the lowest point on Thursday, in the end rose 0.8 percent, to 4,947.10 points, its highest close since January 2008.
The CSI300 index, also down more than 5 percent in early afternoon, rose 0.7 percent, to 5,181.42.
Hong Kong stocks mirrored the dramatic market reversal on the mainland, with the benchmark Hang Seng Index ended only 0.4 percent lower, after falling as much as 2 percent at one point.
China's mid-session plunge was ignited by a sell-off in Shenzhen's growth board ChiNext, the bellwether of this round of mainland bull run.
Small-sized brokerage Golden Sun Securities said on Thursday that to control risks, it would suspend margin financing for purchases of ChiNext shares.
The announcement came a day after Industrial Securities suspended lending to clients to buy shares in certain stocks, triggering fears that the trend of "deleverage" will accelerate amid tighter regulatory scrutiny.
"While the bigger picture still points to a bullish trend for Chinese equities, the prospects of a pronounced and prolonged correction have certainly increased with the latest development," Bernard Aw, strategist at IG Asia Pte Ltd wrote in a note to clients.
But some investors are seeing the corrections as good buying opportunities.
Bosera Asset Management said after market close that it has completed building positions in a newly-launched 4 billion yuan mutual fund, taking advantage of recent fluctuations.
Banking shares were strong on Thursday, which analysts attributed to expectations that Beijing soon would soon allow state lenders to give a greater role to private investors.
Bank of Communications jumped amid talk its shareholder-restructuring proposal could be approved within weeks. The lender issued a statement at midday saying there is no significant progress that requires disclosure.
Shares of Shenzhen-listed BYD Co Ltd , the electric carmaker backed by Warren Buffett, surged in both markets, after it proposed raising over 15 billion yuan through fresh share sales in China. (Editing by Richard Borsuk)