* Hong Kong ends year up 5.3 pct, but below 10-year average
* Shanghai stocks rise, consumer, insurance issues up
* China Communications at two-week high after A-share plan (Updates to midday)
By Donny Kwok and Samuel Shen
HONG KONG/SHANGHAI, Dec 31 (Reuters) - Hong Kong and Shanghai stocks gained ground in the last trading day of 2010 with a stronger yuan fuelling demand for Chinese assets.
Hong Kong shares edged higher in a shortened session on Friday for a third consecutive gaining session, ending the year up 5.32 percent but below the 10-year average gain of about 7.6 percent.
The Hong Kong market lagged its main regional competitor in Singapore, where stocks rose 11 percent in 2010.
"Too many IPOs had hit overall market performance for the year as they soaked up quite a bit of liquidity," said Ample Capital analyst William Lo.
The benchmark Hang Seng Index ended Friday up 0.16 percent at 23,035.45, its highest year-end close since 2007. The index posted a gain of 0.12 percent for the month and finished the week up 0.88 percent, its best weekly gain in five weeks.
The China Enterprises Index of top locally listed mainland Chinese companies gained 0.84 percent to 12,692.43, ending the year down 0.8 percent. The index finished the month 0.98 percent lower, but was 2 percent higher on the week, its best week in two months.
"Appetite for Chinese shares increased, with China assets looking appealing as the yuan went up," said Conita Hung, head of equity research of Delta Asia Financial. "Looking head, the market may move towards 23,600 on new year buying and as the Chinese currency appreciates further."
The yuan hit a high against the U.S. dollar on Friday with the mid-point at 6.6227.
China Communications Construction Co Ltd rose 3 percent to its highest in more than two weeks after the group said it planned to issue up to 3.5 billion A shares on the Shanghai bourse, with part of the proceeds to be used to acquire the rest of CRBC International Co Ltd.
Guangzhou Automobile Group Co Ltd rose 2.3 percent to a more than three-week high after the automaker said it would buy 50 percent of the registered capital of Wuyang-Honda Motors (Guangzhou) Co Ltd for 444.8 million yuan and the Wuyang Trademarks for use in motorcycles and auto parts for about 31 million yuan.
SHANGHAI RISES AS CONSUMER, INSURANCE STOCKS UP
Chinese shares rose on Friday morning in thin trading and an upbeat holiday mood as many investors left their trading desks on the last day of 2010 strategising for the new year.
The benchmark Shanghai Composite Index rose 0.6 percent in morning trading, with most issues, including insurers and consumer counters, rising as tightening fears that dominated the market earlier in the week waned.
The index is set to wrap up 2010 with a 15 percent annual loss, capping a year of rollercoaster performance.
The index tumbled to a low of around 2,300 points in July, surged 37 percent to a peak of 3,186 points in November, then slumped about 13 percent in the remainder of the year.
"The recent slump was mainly driven by tight liquidity toward year-end," said China Merchants Fund Management Co fund manager Liu Dong. "I'm optimistic about next year as a likely recovery in global markets will support China's economy."
However, some investors worry that in the short term Chinese stocks might continue to come under the weight of further tightening, with the government expected to raise interest rates further and ramp up its campaign against inflation, the latest monthly Reuters poll of fund managers showed.
"Tighter liquidity and pressure from additional rate rises will drag on the stock market," said a fund manager polled by Reuters.
Banks, which had rebounded in the past two days, sagged on Friday morning, with the country's biggest lender, Industrial and Commercial Bank of China Ltd, losing 0.7 percent.
However, insurers rose, led by China Pacific Insurance (Group) Co Ltd, which gained 0.9 percent after private equity investor Carlyle Group sold an $860 million stake in the company, exiting its investment and removing one of the overhangs on the stock.
State-owned companies saw a muted response to the finance ministry's announcement on Thursday that the government will increase the dividends it receives from such companies to as high as 15 percent, harnessing a bigger share of their profits for state spending.
PetroChina Co Ltd lost 0.3 percent, while China Petroleum & Chemical Corp (Sinopec) gained 0.4 percent.
Yanzhou Coal Mining Co Ltd rose 2.3 percent after saying it would increase its investment in Yancoal Australia Pty Ltd by A$909 million ($923 million), paving the way for a planned listing of the unit in Australia.
Most money-losing, so-called "special treatment" companies rose as some investors bet that their management would accelerate restructuring plans in order to avoid being delisted from the exchange. (Editing by Chris Lewis)