HONG KONG - Chinese stocks surged to a fresh decade-high on Friday, with the Shanghai benchmark climbing back above the 3,800 mark as renewed optimism over domestic artificial intelligence added more fuel to the liquidity-driven rally.

The Shanghai Composite Index closed up 1.5% to 3,825.76, the highest level since August 2015, pushing the weekly gain to 3.5% in its best run since November 2024.

The blue-chip CSI300 Index jumped 2.1% to a new 10-month high, and ended the week with 4.2% gain. The tech-focused Star50 index was up 8.6%.

"Both individual and institutional investors are accelerating the asset reallocation and shifting money away from bonds to stocks," said Cheng Yu, a portfolio manager at the China fund unit of Allianz Global Investors.

"There's growing consensus that we're seeing a bull market in the making."

Domestic AI-related shares led the surge onshore on Friday, with the CSI Semiconductor Industry Index up 9.5% after surging as much as 10% and the CSI Artificial Intelligence Index up 6.6%.

Chip maker Cambricon Technology and Hygon Information Technology both climbed by the 20% daily limit to record high. Industry giant SMIC jumped over 14%. The tech rally gained momentum after Reuters reported that Nvidia has asked Foxconn to suspend work on the H20 chip, the most advanced model the U.S. company is currently allowed to sell in China. That came after DeepSeek released an upgrade to its flagship V3 AI model on Thursday with domestic semiconductors supports, underscoring Beijing's push toward chip self-sufficiency. The renewed tech optimism could further fuel China's rally, with the Shanghai benchmark now up 23% from its April low, as domestic investors rotate funds into stocks amid easing U.S.-China tensions and Beijing's push against industrial over-capacity.

A-share turnover on the Shanghai and Shenzhen exchanges has exceeded 2 trillion yuan for eight consecutive days, the longest such streak on record.

"For now, FOMO (fear of missing out) sentiment still dominates, leading to buy-the-dip flow on every market correction," Goldman Sachs analysts said.

Generally onshore investors believe that downside risk is low in the near term, and market may have room to rally further, they added.

Hong Kong's benchmark Hang Seng Index closed up 0.9%, recouping earlier losses in the week to register a third consecutive weekly gain.

Tech shares also led gains in the city, with the sub-index up 2.7% and AI sector up 2.6%.

(Reporting by Jiaxing Li in Hong Kong and Samuel Shen in Shanghai; Editing by Sumana Nandy, Aidan Lewis)