The U.S. dollar weakened in early European trade Monday and the Chinese yuan soared to its highest level since mid-September as relaxation of some of China’s strict COVID-19 curbs boosted risk appetite.

The blue-chip CSI 300 Index jumped 1.7% by the end of the morning session, while Hong Kong's Hang Seng Index climbed 3.5%.

Other Asian shares, meanwhile, extended their rally, as investors hoped a China reopening would eventually brighten the outlook for global growth and commodity demand.

“The timing of a major COVID policy change may be a bit earlier than our baseline expectation of after March 2023,” said analysts at UBS, in a note on Monday.

The news drove up hopes that an easing of restrictions will help spur a recovery in the Chinese economy, which was driven close to contraction territory by continued COVID-linked disruptions.

"In the near term, the internet platform companies should fare better. Intuitively, as cases soar, people will choose to stay home to minimize the contagion risks," said Hao Hong, chief economist of Grow Investment Group.

A private-sector business survey showed on Monday that China's services activity shrank to six-month lows in November, as more COVID outbreaks and widening containment measures weighed on demand and operations.

Analysts warned of disruption to the consumption and manufacturing sector due to surging cases as China gradually eases COVID restrictions, which might further dent business activity in the near term.