The Chinese yuan surged on Monday and finished the domestic session at its strongest level in 3-1/2 months, as a spurt in China's stock market on the back of economic recovery optimism underpinned sentiment.

The onshore yuan finished domestic trading at 7.0330 per dollar, the strongest such close since March 18, and was up 0.48% from the previous late night close.

The strength in the Chinese currency came after a state-run media commentary published over the weekend saying the A-share market had the basis and key elements for a bull market. It cited sound economic fundamentals, capital market reforms and continued fund inflows into Chinese shares.

The blue-chip CSI 300 index and the benchmark Shanghai Composite jumped more than 5% for the day, extending the previous week's rallies.

Prior to market opening, the People's Bank of China (PBOC) set the midpoint rate at 7.0663 per dollar, 25 pips or 0.04% weaker than the previous fix of 7.0638.