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HK, China stocks up, shrugging off latest tightening move

Published 04/18/2011, 01:11 AM
Updated 04/18/2011, 01:16 AM
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By Clement Tan and Yixin Chen

HONG KONG/SHANGHAI, April 18 (Reuters) - Hong Kong and China stocks reversed early losses on Monday to close higher at midday, taking China's latest tightening move in stride, but property-related issues in Hong Kong extended their losing streak.

Hong Kong's benchmark Hang Seng Index closed up 0.2 percent to 24,045.4 at the midday trading break, after recording its first weekly loss in a month last week on investor caution ahead of China's inflation data last Friday.

Financials led gains on the benchmark Hang Seng Index , with AIA Group Ltd further boosted by news of a 21 percent rise in the value of its new business in the first quarter.[ID:nL3E7FI020]

Asia's third-largest insurer gained 2.8 percent by midday, with the relative data index (RSI) value of 81 showing it to be technically overbought.

The sub-index of property stocks in Hong Kong fell 0.8 percent. China Overseas Land & Invesment Ltd and China Resources Land Ltd each lost 1.9 percent, while Sun Hung Kai (SHK) Properties Ltd slipped 1.3 percent.

"Sunday's RRR hike is giving some people an excuse to profit take on property," said Lee Wee-Liat, regional head of property at Samsung Securities (Asia) Ltd. "But the trend remains more positive for China property than for Hong Kong."

HSBC Holdings Plc last Thursday raised mortgage rates for the second time in a month in Hong Kong.

PROPERTY SUPPORTS SHANGHAI GAINS

In contrast, the property sector supported the 0.3 percent rise in China's main stock index at midday, as liquidity remained ample in spite of the People's Bank of China raising the reserve requirement ratio (RRR) for banks on Sunday.

The benchmark Shanghai Composite Index was up at 3,058.8 points, extending its rise of 0.3 percent last week, when it ended at a five-month closing high.

The property sub-index jumped 0.9 percent, despite data showing China's house prices climbed less briskly in March after a slew of measures to curb speculation and limit home purchases tempered property inflation. [ID:nL3E7FI07A]

Analysts said the low valuation of property companies attracted bargain hunting by investors, and positive earnings results and sales data also supported the sector.

Shares of China Vanke , the mainland's biggest developer, rose 0.7 percent, while Shanghai Fenghwa Group surged by its 10 percent daily limit.

China raised banks' required reserves for the fourth time this year, extending the fight against excessive liquidity and stubbornly high inflation in the world's second-largest economy. [ID:nL3E7FH05Y]

"The market had expected the RRR rise, and it was largely priced in after China posted the high inflation data on Friday," said Wen Lijun, an analyst at Nanjing Securities.

"There's no problem with liquidity in the market, with large numbers bills and repos maturing," she said. "And after the tightening policy in the property market, funds are likely to turn to the stock market."

The most recent tightening move will soak up about 360 billion yuan ($55.1 billion) that could otherwise have been lent out, still less than the nearly 450 billion yuan in central bank bills and repos that will mature in the next two weeks alone.[ID:nL3E7EV1O6]

In the money market, the benchmark weighted-average seven-day repo rate jumped 34 basis points after Sunday's RRR hike, but stayed within recent levels as traders largely took the move in stride. (Editing by Jonathan Hopfner)

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