By Samuel Shen and Summer Zhen

SHANGHAI/HONG KONG (Reuters) - Animal spirits are back in China's stock market as investors rush into equities, galvanized by Beijing's policy bonanza and driven by fear of missing out on what some see as a rally of historic intensity.

Brokerages are bustling with retail clients and a burst of orders is jamming trading systems as investors rotate money out of bonds and deposits into stocks, leading to an explosion in stock turnover and a jump in yields.

"Deposit rates are too low, and real estate investment is no longer safe," said 30-year-old office worker Darren Wang, who started buying stocks using borrowed money.

"There's no other way to be rich other than redoubling bets on stocks. The market craze you see this time could be unprecedented."

Stocks have endured three years of gloom as economic activity struggled to return to pre-pandemic buoyancy while a debt crisis among property developers rippled through markets.

That gloom suddenly turned into euphoria last week as the blue-chip CSI300 Index surged 16% for its best week since 1998, after the government announced a volley of stimulus including interest rate cuts and a $114 billion war chest to boost share prices.

Many of the policies are yet to be implemented and there is no guarantee they can fundamentally improve business conditions or cure economic illnesses, including the prolonged property crisis and anaemic consumption. Even so, investors said they are following the money.

"Life has been tough for so long and finally it's time to make some money," said Wen Hao, a manager at a tech startup in Hangzhou who bought energy stocks on Monday.

He drew parallels to the bull run of 2015 when Shanghai's stock benchmark doubled in just six months, citing huge sums of "state-backed money on their way into the stock market".

The central bank last week unveiled a swap program initially worth 500 billion yuan ($71.30 billion) to fund stock purchases by brokers, funds and insurers. It will also create a 300 billion yuan re-lending facility to fund share buy-backs by listed companies. Both schemes are set to be expanded.

MARKET SURGE

China's CSI300 Index surged more than 8% on Monday, extending last week's 16% jump. Shanghai stocks shot up more than 7% while Shenzhen shares soared more than 10%, with combined turnover of 2.6 trillion yuan exceeding the bull run a decade ago.

"The 2014-15 bull run was funded by illegal margin financing. This time, the central bank is offering the leverage," said a hedge fund manager who was not authorised to speak with the media so declined to be identified.

"Investors are rushing into stocks because there's state backing," the manager said, adding that difficulty making macro economic projections means the rally is more about liquidity and mood than fundamental conditions or corporate prospects.

Signalling official assent for the rally, the China Securities Journal said in an editorial on Monday that reviving stocks and boosting investor confidence will aid the country's economic recovery, breaking a vicious cycle of curbed investment and damaged sentiment.

Brokerages nationwide, which were quiet just a week ago, are now brimming with investors eager to open accounts or borrow money to trade. Such is the demand that clearing services were unusually open at the weekend approving new accounts.

Guotai Junan Securities has arranged additional staff at branches to handle surging account opening requests for the upcoming National Day golden week holiday and to cover non-working hours, showed an internal notice seen by Reuters.

Guotai Junan Securities did not immediately reply to Reuters' request for comment.

Zion Zhong, a customer manager at Citic brokerage's Suzhou branch, said the margin financing business has suddenly become busy.

Another manager at a Citic outlet in Shanghai also described a surge in business activity.

"More people are opening stock accounts; more queries about margin financing... We're many times busier than previously," the manager said.

The sudden surge in buy orders triggered transaction delays on Friday at Shanghai's stock exchange. The bourse conducted tests over the weekend to ensure network reliability.

ROTATION

In a sign that money is rotating out of safer assets, China's 30-year treasury bond futures hit a two-month low on Monday after slumping 3.6% last week - their worst-ever week.

"A money migration of epic scale is coming - trillions are shifting out of bond funds, wealth management and other fixed-income products, into equities," Zhao Jian, head of Atlantis Finance Research Institute, wrote in a client note on Sunday.

Three years of bear market has fostered tens of millions of short-term investors who yearn to have their money back, so "the bull run will power ahead with few decent corrections," Zhao said, predicting many will end up out of pocket when the market inevitably turns.

Veteran individual trader Wu Jie, 48, said he felt bewildered by the sudden change of mood.

"The economy remains in bad shape," said Wu, who is currently light in his stock position.

"But if you look at the trading volume, the rally will likely be sustained. I have cash ready, and I'm waiting for a major correction so that I can get in."

($1 = 7.0125 Chinese yuan renminbi)

(Reporting by Samuel Shen, Summer Zhen and Tom Westbrook; Editing by Vidya Ranganathan and Christopher Cushing)