A key gauge of Chinese property stocks rallied to its highest level in about four weeks with market watchers pointing to speculative flows betting on more policy support for the struggling sector.

A Bloomberg Intelligence gauge tracking the Chinese builders gained as much as 7.8% to trade at the highest level in about four weeks. Sunac China Holdings Ltd. surged as much as 65%, while China Evergrande Group jumped as much as 36%.

China should drop home-buying restrictions in regions other than top-tier cities with the hottest markets, the Securities Times said in a front-page commentary on Wednesday. “It is urgent to continue to increase policy support on the real estate sales side” so as to boost demand suppressed by the previous rigid housing policies, according to the commentary.

“It’s some hedge funds speculating on more stimulus,” said Xin-Yao Ng, investment manager of Asian equities at Abrdn. “The distressed developers are definitely the speculators’ pick to bet on stimulus as they see the biggest delta to policy news.”

China’s housing crisis has produced a record wave of defaults, with home sales slumping for a third straight month in August. Authorities have rolled out a raft of measures to support the industry, including a move last week to lower down-payment thresholds in some big cities. The latest steps have started to filter through, with homes sales in Beijing and Shanghai surging over the weekend.

Chinese high-yield dollar bonds, mostly issued by developers, were largely unchanged with little liquidity Wednesday morning, according to credit traders, in contrast to a rally in developer stocks. Country Garden’s dollar bonds still trade at deeply distressed levels around 9-14 cents on the dollar despite a recent rebound, indicating investors remain on edge about the risk of an eventual default.

“The high frequency sales data in the next two weeks is crucial for investor judgment on whether the policy is helpful enough,” said Willer Chen, senior analyst at Forsyth Barr Asia Ltd.

--With assistance from Alice Huang and Dorothy Ma.