* Shanghai shares +1.7%, blue-chips +1.6%; both break new highs
* Retail and regulatory backing keeps rally going for 7th day
* Morgan Stanley raises indexes targets; UBS sees more upside
HONG KONG, July 8 (Reuters) - Shares in mainland China closed at multi-year highs on Wednesday, extending their winning streak to the seventh session, as hopes of an economic recovery, regulatory and retail support sustained the market’s unabating rally. ** At close, the Shanghai Composite index was 1.7% higher at 3,403.44, its highest closing level since February 2018, while the blue-chip CSI300 index ended up 1.6%, at its highest closing level since June 2015.
** The CSI300’s financial sector sub-index jumped 2.6%, the consumer staples sector gained 0.3% and the real estate index 0.1%.
** The smaller Shenzhen index rose 1.9% and the start-up board ChiNext Composite index was higher by 2.3%, trading at its highest in almost five years.
** Surging volumes and a deluge of foreign money propelled equities last week after the government mouthpiece China Securities Journal called for a healthy bull market to aide Beijing’s diplomatic hand on Monday.
** Morgan Stanley raised target prices for the CSI300, MSCI China, Hang Seng and H-share indexes. UBS’ analysts said in a note on Wednesday the CSI300 could edge higher in the next three to six months on “buoyant earnings estimates for next year rather than a valuation re-rating.”
** “The recent sharp rally in China’s CSI300 Index reminds us this is an inefficient, retail-driven market,” Nicholas Yeo, head of China equities at Aberdeen Standard, said in written comments. “What’s important is not to follow the market blindly.”
** The Shanghai index is up 11.6% and the CSI300 has risen 16.5% so far this year. Shanghai stocks are up 14% so far this month.
** About 58.71 billion shares were traded on the Shanghai exchange. The volume in the previous trading session was 65.78 billion. (Reporting by Noah Sin; editing by Uttaresh.V)