* Mainland indexes rally for 2nd day in rising turnover
* Thursday rally focused on blue-chips, brokerages
* Technical indicators, futures markets celebrate
* HK investors sell out of Shanghai
By Ruby Lian and Pete Sweeney
SHANGHAI, Nov 5 (Reuters) - Mainland Chinese stock markets extended their gains on Thursday as investors jumped into blue-chip shares, driving transaction volumes to their highest levels in more than three months.
The CSI300 index of the largest listed companies in Shanghai and Shenzhen closed up 2.1 percent to 3,705.97, while the Shanghai Composite Index gained 1.9 percent, to 3,522.82 points, both backing off from intraday rises of around 4 percent.
The trading volume of Chinese shares in Shanghai reached 553,255 transactions, their highest level since July 28.
Both mainland indexes are up more than 20 percent from the troughs they hit during the August stock crash, technically putting them in bullish territory.
Futures markets also surged, with every index future contract trading 2-3 percent higher and other technical indicators, such as the Moving Average Convergence Divergence and the Relative Strength Index, posting their best performances since late August.
"The gains eased later perhaps because of some profit-taking, which is normal," said Du Changchun, an analyst at Northeast Securities in Shanghai.
"I think the market will go up further even with some fluctuation."
Chinese investors continue to increase their margin trading leverage, with outstanding margin loans on Wednesday hitting their highest since the end of August.
Analysts say Thursday's blue-chip rally in Shanghai was inspired by plans to deepen reform of state-owned enterprises and with other signs of tentative recovery in the Chinese economy.
Money also flowed into stock brokerage shares with many onshore securities firms closing at their upward limit of 10 percent on hopes a link between Hong Kong investors and Shenzhen's stable of high growth counters would drive fresh profits.
"The surging brokerage shares yesterday attracted a lot of money into the market, supporting the further rise today," said Liu Jingde, an analyst at Cinda Securities in Beijing.
"Banking shares are pushed by the brokerages."
However, offshore investors were uninspired. The Hang Seng index was unchanged at 23,051.04, while the China Enterprises Index gained 0.5 percent, to 10,617.67 points.
More widely, investors remain uncertain about the sustainability of such trends given the large overhang of market participants waiting to sell into any rally.
Mainland markets have posted several mini-rallies since the 30 percent crash in the summer.
These rallies have been followed by retreats with fund managers warning that Chinese stock valuations - especially those in Shenzhen - remain extremely high, even after the crash, with the CSI300 still up more than 50 percent since late 2014. (Additional reporting by the Shanghai newsroom; Editing by Sam Holmes)