* HK shares up 0.93 percent, China shares up 1.07 percent
* Banking counters in sharp focus
* Li & Fung dives after missing three-year profit target (Updates to midday)
By Emma Ashburn and Clement Tan
HONG KONG, March 25 (Reuters) - Banks led a broad uptick in the Hong Kong and China markets on Friday morning, with Bank of China Ltd gaining after posting better-than-expected earnings late on Thursday.
The benchmark Hang Seng Index was up 0.93 percent at 23,127.47 by the midday trading break, tracking gains on Wall Street as investors continued to favor Chinese banks ahead of earnings announcements.
The Shanghai Composite Index was up 1.07 percent at 2,978.14, with the financials sub-index rising 1.86 percent.
"Chinese banks doing well is not a surprise, but Bank of China's 29 percent full-year net profit increase is," said Edward Huang, a strategist at Haitong International Securities.
Barclays Capital had forecast Bank of China to post 2010 net profit growth of 20 percent, and China banks to achieve growth of 35 percent on average.
Bank of China, the country's third-largest lender, was up 1.8 percent in Shanghai and 2.9 percent in Hong Kong.
Industrial and Commercial Bank of China Ltd is scheduled to report its earnings on March 30, with China Construction Bank Corp on March 27 and Agricultural Bank of China Ltd on March 29.
"Bank of China's earnings showed that policies to cool property prices won't have a big impact on bank earnings, at least in 2011," said Xiangcai Securities analyst Cheng Yi in Shanghai. "And bank stocks are cheap; they're very attractive right now."
Market players penalised bad earnings, with Li & Fung Holdings Ltd plunging 7.2 percent in Hong.
The global consumer goods exporter was down by as much as 9.2 percent in early trade after posting an underpar profit for 2010 and failing to meet its three-year profit target.
"It was disappointed on its bottom line," said Patrick Yiu, director at CASH Asset Management. "But it is a rather solid company with good growth prospects and that will allow it to continue enjoying a high valuation."
Coal plays were bullish ahead of earnings later on Friday. China Shenhua Energy Co Ltd rose 2.1 percent in Shanghai and 0.7 percent in Hong Kong. Yanzhou Coal Mining Co Ltd was up 2.0 percent in Shanghai and 2.4 percent in Hong Kong.
PROPERTY, CEMENT GAIN IN CHINA
Property stocks advanced 1.7 percent as a government think tank recommended building more affordable housing and other steps to stabilise the housing market in the long run. China's largest property developer China Vanke Co Ltd jumped 2.4 percent. Cement stocks rose on expected demand from a government plan to build 10 million units of affordable housing. Anhui Conch Cement Co Ltd was up 2.2 percent. "This construction will use a lot of cement, and the price won't be discounted. Cement stocks are relatively undervalued right now, so there's strong demand in this sector," said Cheng.
The Shanghai Composite Index would likely end 2011 up about 11 percent, recouping most of the index's 14.3 percent loss in 2010, according to a Reuters poll of 16 analysts. Concern over monetary tightening could lead to a temporary dip next quarter, analysts said. [ID: nTOE72L00Q] (Additional reporting by Donny Kwok; Editing by Chris Lewis)
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