(Refiles to clarify reference to "small caps" in paragraph 5)
SHANGHAI, July 9 (Reuters) - China shares rebounded sharply on Thursday, with the Shanghai Composite index posting its biggest percentage gain in six years, as a fresh round of government support measures stemmed panic selling.
But some analysts warned that it was too early to say if savage market correction was over, noting that the pace of deleveraging is accelerating and the market performance is being distorted by the fact that over half of China's listed companies have halted trading
The Shanghai Composite jumped 5.8 percent, to 3,709.33 points, its biggest rise since March, 2009. The CSI300 index of China's biggest listed companies surged 6.4 percent, to 3,897.63.
Most of the 1,401 stocks still trading in Shanghai and Shenzhen surged their 10 percent daily limit. Only four stocks fell.
The sharp rebound came after China's state margin lender said it was broadening its bailout buying to include small cap stocks and mutual funds, rather than just blue chips.
The market also drew support from drastic measures unveiled by the securities regulator that banned shareholders with large stakes in listed firms from selling for the next six months.
But some analysts questioned if the market was really steadying after plunging some 30 percent since mid-June.
"It is far from calling it a victory for the rescuers as more than half of listed companies are not trading in the market," said Du Changchun, analyst at Northeast Securities in Shanghai.
He added that the government still needs to publish new measures to counter selling pressure from investors seeking to cut their risk exposure.
Reflecting such pressure, Chinese stock investors slashed margin loans from brokerages by nearly 30 percent over the past three weeks, unwinding over $100 billion worth of leveraged bets.
During the first two days of this week, investors unwound 286.3 billion yuan of margin positions, even after 21 Chinese brokerages pledged to set up a 120 billion yuan fund to buy blue chip stocks. (Reporting by the Samuel Shen and Pete Sweeney; Editing by Kim Coghill)