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China's blue-chips have best day in 21 months, aided by MSCI inclusion hopes

SHANGHAI, May 25 (Reuters) - China stocks rebounded sharply on Thursday, as the blue-chip CSI300 index posted its best day in 21 months amid growing hopes that global index provider MSCI Inc will add mainland shares to its benchmark next month.

Investors appear to have shrugged off Moody's downgrade of China's credit rating on Wednesday, after several senior government officials criticised the decision.

The blue-chip CSI300 index rose 1.8 percent, to 3,485.66 points, while the Shanghai Composite Index advanced 1.4 percent to 3,107.83 points.

The strongest performers were banking and real estate stocks, whose indexes jumped 3.3 percent and 4.0 percent, respectively.

China's Nasdaq-style board ChiNext inched up 0.1 percent, reversing earlier losses to follow the broader market higher.

The SSE 50 - dubbed China's "Nifty Fifty" index - jumped 2.7 percent to close at a near 17-month high.

Expectations were building that MSCI will announce China's inclusion its Emerging Markets Index when it issues its annual classification review on June 20.

Snubbing China last year, MSCI cited concerns over share suspension rules and monthly limits on repatriating capital.

China Securities Co., a brokerage, said in a report on Wednesday: "The chance of an A share inclusion into MSCI has risen drastically for 2017."

The brokerage encouraged continued buying of leading blue-chips, which have already outperformed small-caps this year.

JP Morgan, China International Capital Corp and BlackRock have also expressed optimism over prospects A shares could be include by MSCI this year. (Reporting by Luoyan Liu and John Ruwitch; Editing by Jacqueline Wong)