A lady gazes at the screen to monitor the change in stock market, Huibei city, Anhui province, Sep 2, 2014. [Photo/Asianewsphoto]

HONG KONG - Shanghai shares closed at their highest in 15 months on Tuesday as investors bet funds freed from last week's initial public offering (IPO) subscriptions, selecting stocks expected to benefit from state firm reforms and the coming equity link between Shanghai and Hong Kong.

The Shanghai Composite Index climbed 1.37 percent to 2,266.05 points, highest close since June 5, 2013. The CSI300 of the leading Shanghai and Shenzhen A-share listings closed up 1.3 percent to its highest since mid-December.

Defence stocks were the key outperformers for a third day, lifted by reform hopes in the sector. China Avic Electronics jumped 5.6 percent, and China Spacesat soared the maximum allowed 10 percent.

Kweichow Moutai led gains among Chinese liquor makers with a rise of 2.6 percent. Shares of the sector leader were among those recommended by Goldman Sachs in its latest report, which said the stock would benefit from the coming cross-border equity link.

The Nasdaq-style ChiNext Composite Index of mostly high-tech start-ups listed in Shenzhen added 1.2 percent to a fresh record high.

Xiao Gang, China's top securities regulator, said on Monday the Shenzhen exchange should continue to expand the Small & Medium Enterprise (SME) board and speed reforms for the ChiNext, the securities regulatory body said on its website.

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