* Chalco at 5-month high, Jiangxi Copper at 8-month high
* Financials, commodity stocks rise in Shanghai (Updates to midday)
By Sui-Lee Wee and Farah Master
HONG KONG/SHANGHAI, Sept 29 (Reuters) - Hong Kong stocks had risen to an eight-month high by midday Wednesday for the second-last session of the quarter, driven by buying of index heavyweights ahead of the expiry of futures settlement contracts, and underpinned by gains on Wall Street.
China's key stock index gained 0.5 percent, with gains in overseas markets prompting investors to buy back into financials and commodity issues such as Datong Coal Industry Co Ltd, which have sagged on concern about the global economy.
In Hong Kong, resources shares were among the biggest winners, with Aluminum Corp of China Ltd (Chalco) rising to a five-month high on hopes that its parent would inject its majority stake in a rare earths company into the listed company. Jiangxi Copper Co Ltd soared to its highest in more than eight months after copper closed near a five-month peak on Tuesday.
Abundant liquidity and enthusiasm about the upcoming initial public offering of AIA Group would boost the performance of the market in the upcoming quarter, dealers said.
"The fourth quarter will be better than the third quarter," said Ben Kwong, chief operating officer at KGI Asia. "The weakness in the U.S. dollar will continue to push funds into relatively risky assets."
"But in between, we expect a significant correction," he said. "I would not recommend buying at this moment. All these shares are overvalued."
The benchmark Hang Seng Index, which is poised to post its best monthly gain since July 2009, was up 1.28 percent at 22,392.09 at the midday trading break.
A four-week rally supported by recovering turnover had taken the index well into overbought territory. The index's 14-day Relative Strength Index rebounded to 71 by midday Wednesday, indicating the market is now overbought.
The index looks set to finish the third quarter with a rise of 11.2 percent. It is up 2.4 percent this year.
SHANGHAI RISES
The Shanghai Composite Index was at 2,624.3, after losing 0.6 percent on Tuesday. China's stock market rose around 10 percent in July but has since traded narrowly. It is still down 20 percent on the year, underperforming regional peers.
Analysts say a lack of clarity on the policy front and uncertainty over the global economy continue to weigh on shares but strong corporate earnings and low valuations for large cap companies should give the index strong support above its 60-day moving average at 2,560.
There are also expectations that China's economy may perform better than expected in the third quarter. Major economic data for the quarter will be published shortly after a week-long market holiday starting on Friday for the country's national day.
In the first glimpse of the data, HSBC's China Purchasing Managers' Index rose to a five-month high in September, mainly reflecting brisker gains in output and new business -- including positive growth in export orders for the first time in four months.
"Banks and property are boosting the index today. Property, on expectations that sales will increase over the national holiday, while investors are eyeing financials as relatively cheap," said Cao Xuefeng, analyst at Huaxi Securities in Chengdu. "The index may fall back with uncertainty over the outlook for the market after the holiday."
China Citic Bank Corp Ltd gained 1.4 percent after it said its parent would fully buy into its planned rights issue in Hong Kong and Shanghai.
Bank of China Ltd rose 1.2 percent, while China Minsheng Banking Corp Ltd gained 1.1 percent.
"Commodity issues are pulling the index higher today after profit-taking in yesterday's session," said Chen Shaodan, analyst at China Development Bank Securities in Beijing.
Zhengzhou Coal Industry and Electric Power Co Ltd rose 5.6 percent while Datong Coal gained 7.1 percent.
Turnover of Shanghai A shares slipped to 58 billion yuan ($8.67 billion) on Wednesday from 59 billion yuan on Tuesday. (Editing by Chris Lewis)