* Hong Kong rises 1.09 percent; Shanghai up 0.63 percent
* Banks higher in Hong Kong on China rate rise expectations
* Coal mining issues lift Shanghai market (Updates to midday)
By Jun Ebias and Farah Master
HONG KONG/SHANGHAI, Nov 11 (Reuters) - Shares in Hong Kong and Shanghai were higher by midday on Thursday, tracking gains in other Asian markets, while Moody's Investors Service upgrade of China's sovereign debt rating further lifted sentiment.
Investors shrugged off the higher bank reserve requirement announced by Beijing late on Wednesday, with banks trading higher in Hong Kong.
Moody's raised China's rating to Aa3, four steps below its highest rating, from A1, citing the country's solid economic fundamentals.
"The rating upgrade is an affirmation of China's stable economic outlook, which will be positive for corporate earnings going forward," said Belle Liang, research head at Core Pacific-Yamaichi. "People had been expecting the reserve ratio increase, so last night's announcement was not a surprise."
The benchmark Hang Seng Index was up 1.09 percent at 24,767.53, snapping two sessions of losses.
Chinese banks were higher on expectations Beijing will raise its policy rate for a second time this year after inflation accelerated to a 25-month high in October, lifting interest margins.
"Banks have excess reserves, so this kind of increase (in reserve ratios) doesn't affect their earnings at all," said Alex Au, who helps manage more than $300 million as managing director at Richland Capital. "In the next few months, there will be more interest rate rises coming. If that happens, it will be good for banks because their earnings are positively correlated to interest rates."
Banks could charge higher rates on loans, but may not have to pay higher rates on a large pool of deposits, raising their interest margins, Au said.
Industrial and Commercial Bank of China Ltd rose 2.3 percent, spurred also by the announcement of the details of its $6.8 billion fundraising plan.
GOME Electrical Appliances Holding Ltd rose 13.9 percent on hopes the dispute between its former chairman Huang Guangyu and shareholders would be resolved, dealers said.
SHANGHAI RISES AS COAL MINERS GAIN
The Shanghai Composite Index was up 0.63 percent at 3,134.91 points, reversing a 0.6 percent decline on Thursday.
The index has recouped 18 percent in the past six weeks, partly boosted by quantitative easing measures in the United States.
Solid gains by coal miners offset a fall in banks such as heavyweight Industrial and Commercial Bank of China Ltd, one of the biggest drags on the index, after its rights issue was priced at a steep discount to the market price.
Analysts said the prospect of capital still flowing into the domestic market was offsetting the negative impact of tightening measures.
Despite China's tight control of capital flows, money disguised as trade and foreign investment, and funds eyeing capital market trading and property speculation via grey channels, are flooding Chinese markets, propelled by jumping asset prices and expectations of yuan appreciation.
"Yesterday's rise in reserve requirements and today's CPI 4.4 percent figure, suggests the measures addressing high inflation are reasonable. Capital flows entering the domestic market will offset some of the negative impact," said Guo Yanling, analyst at Shanghai Securities.
Miners soared with Anhui Hengyuan Coal Industry and Electricity Power Co Ltd jumped by its 10 percent limit, while Western Mining Co Ltd rose 7.9 percent.
Tightening would continue, economists warned.
"There will be structural movement going forward, with investors positioning their trades in inflation-related companies and moving out of banks, which will be the main sector hit," said Guo.
Sources told Reuters on Thursday that China raised reserve requirements twice, not once, for some banks.
But low valuations for bank would still be a redeeming factor, analysts said, suggesting the sector was still attractive.
Banks were mixed with ICBC down 1.7 percent, Agricultural Bank of China Ltd off 0.4 percent, and China Minsheng Banking Corp Ltd flat.
Volume remained active with turnover slipping only slightly to 141.1 billion yuan ($21.3 billion) from 143.1 billion yuan, sustaining a surge seen since the start of October. (Editing by Chris Lewis)