(Fixes typos in first and second paragraphs)
* Hang Seng Index vaults to 2010 high, defies high RSI
* Laggard mainland banks, large caps join rally
* Midday turnover crosses HK$60 billion, highest in months
* Investors buy local assets as U.S. dollar weakens
* Gold at new record as investors anticipate Fed easing (Updates to midday)
By Vikram S.Subhedar
HONG KONG, Oct 6 (Reuters) - Hong Kong stocks rose to a 2010 high on Wednesday morning as investors poured money into local assets as expectations of a another round of asset purchases by the U.S. Federal Reserve to stimulate the economy weakened the dollar.
Mainland banking shares, which have a large weighting on the benchmark index, joined the rally after sharply underperforming through the year.
The Hang Seng Index was up 1.08 percent at 22,884.65 at the midday trading break, moving further into technically overbought territory according to its relative strength index, currently at 78 and well above the threshold 70 level.
With several large cap constituents on the Hang Seng Index already up as much as 20 percent over the past month, investors shifted focus to laggards such as banks.
"Mainland banking shares were hit earlier this year by a weak market coupled with the risk that China would tighten policy by curbing lending or raising capital requirements," said Mark To, head of research at Wing Fung Financial in Hong Kong. "But with market sentiment improving, investors are chasing laggards and retail as well as institutional investors will likely look to build positions in banks, which are trading at fairly attractive valuations."
China Construction Bank Corp (CCB), up 2.5 percent, had the biggest positive impact on the main index. Industrial and Commercial Bank of China Ltd (ICBC) rose 1.9 percent.
ICBC shares have fallen 8.5 percent this year compared with a 4.6 percent gain for the Hang Seng Index.
Mainland banks are trading at discounts to their long-term valuations based on their forward twelve-month price-to-book as well as price-to-earnings multiples.
ICBC trades at a 20 percent discount to its ten-year median price-to-book ratio of 2.4. CCB trades at a 17 percent discount.
Property developer Hang Lung Properties Ltd rose 4.9 percent and was the top gainer on the benchmark index. Hang Lung had largely missed the September rally in local property plays, partly due to its exposure to the mainland market.
Hang Lung is up 10.6 percent since the end of August compared with an about 20 percent advance for rivals Sun Hung Kai Properties Ltd and Cheung Kong (Holdings) Ltd.
Bucking the trend, footwear retailer Belle International Holdings Ltd fell 4.4 percent as investors continued to pocket gains after a rally to a life high on Monday.
Turnover on the Hong Kong stock exchange was about HK$62 billion in the morning session, more than the 200 full-day moving average, according to traders at Standard Chartered, helped partly by share placements from China Everbright Ltd and Zhongsheng Group Holdings Ltd.
A sustained recovery in trading activity after the summer lull has lifted Hong Kong Exchanges and Clearing Ltd to the highest level since May 2008 and up nearly 30 percent in the past month. HKEx was up 1.9 percent. (Editing by Chris Lewis)