* Hang Seng Index rises 0.6 percent to one-month high
* Shanghai eases on profit-taking in energy counters
* Tencent hits record, up 34 percent this year
* Year's worst performer Cathay up 2.9 pct before earnings (Updates to midday)
By Vikram S.Subhedar and Emma Ashburn
HONG KONG, March 9 (Reuters) - Hong Kong stocks advanced to the highest level in a month on optimism over earnings, while easing fiscal tightening worries and attractive valuations continued to support the case for going long mainland banking shares.
Buyers stepped in to buy Chinese companies, particularly banks and conglomerates said traders, as inflation fears waned and expectations built that the central government's tightening stance was easing.
China reversed punitive reserve requirements for some banks after getting them to rein in lending, two sources told Reuters on Tuesday, an indication of success in a crucial part of the government's campaign to control inflation.
While oil companies were broadly weaker as crude oil prices retreated, banks continued to support the upward trend.
China Construction Bank Corp and larger rival Industrial & Commercial Bank of China Ltd were up more than 1 percent and were the biggest boost to the Hong Kong market.
Both banks trade at discounts of more than 20 percent to their historic forward 12-month earnings multiples, according to Thomson Reuters Starmine and are seeing earnings expectations revised upwards.
"Investors are waiting for the CPI number to come out, that and they're waiting to see what policies the central government will announce during their annual meetings this week," said Xu Yinhui, analyst at Guotai Junan Securities in Shanghai. "But this week aside, financials are still an undervalued index and a good long-term play."
Hong Kong's benchmark Hang Seng Index was up 0.61 percent at 23,855.85 by the midday trading break. It faces resistance at around 24,100, a level marking the top of a downward trend in place since November 2010 when the index hit a near 2-½ year high.
Cathay Pacific Airways Ltd ended the morning 2.9 percent higher ahead of its earnings report, which came in just as the market closed for lunch.
The airline reported record results for 2010, blowing past analyst estimates, but warned that already-high fuel costs were expected to rise as oil prices stay elevated.
Tencent Holdings Ltd was up 1.9 percent.
SHANGHAI TRIMS GAINS
Shanghai's key stock index fell slightly by midday as oil companies took a hit on expectations of thinner margins, but banks continued to give the upward trend momentum.
The Shanghai Composite Index was down 0.2 percent as the country's largest company PetroChina Co Ltd lost 0.7 percent. China Petroelum & Chemical Corp (Sinopec), China's top oil refiner, was up 0.5 percent after the company's general manager said it had stopped exporting gasoline in March.
Margins for oil refiners have been squeezed since oil passed $80 per barrel, and policymakers have repeatedly said state-owned refiners must not pass all higher crude costs onto consumers, according to a report by Citi analysts.
The property sub-index was down 0.6 percent in profit-taking a day after a record earnings report by sector bellwether China Vanke. (Editing by Chris Lewis)