* Shanghai rises 1.3 percent; Hong Kong up 1.2 percent
* Property plays drive HK higher on low rate expectations
* Commodities gain in Shanghai on weak U.S. dollar (Updates to midday)
By Jun Ebias and Farah Master
HONG KONG/SHANGHAI, Nov 4 (Reuters) - Shanghai and Hong Kong stocks were higher by midday Thursday, joining other Asian markets as investors bet the region would attract more funds from investors seeking higher yields after the Federal Reserve announced a new bond buying programme.
The Shanghai Composite Index was up 1.3 percent at 3,071, also buoyed by a mild open market operation on Thursday, indicating the People's Bank of China may not tighten monetary policy again in the near term after surprising markets with an interest rate rise on Oct. 19.
The central bank kept the auction yield of its three-month bills unchanged on Thursday and is on course to drain only 500 million yuan ($75 million) from the system this week, much less than the market had expected.
The index faces strong resistance AT around 3,100 points, a level it fell below in April after Beijing introduced property curbs. That level has not been breached since as that region is where profit-taking positions have accumulated.
China's stock market has jumped about 16 percent since the start of October with swathes of new investors entering the market and volume soaring to record highs. The index posted its highest turnover on Tuesday.
"Right now the possibility of a bubble for Shanghai A shares is not likely. The broader market is looking healthy, small and medium-sized company valuations are more excessive but valuations in general are still quite reasonable," said Wen Lijun, analyst at Nanjing Securities.
Coal issues gained, with Anhui Hengyuan Coal Industry and Electricity Power up 4.2 percent, China Shenhua Energy Co Ltd 2.5 percent higher.
Energy counters rose, with Shanxi Top Energy Co Ltd jumping to its 10 percent limit.
Commodity and energy issues, which benefit from a weaker dollar, have rallied since October on expectations of the Fed loosening monetary policy.
Analysts said in the long term market confidence may be affected by worries over a shift in domestic monetary policy, but this may not deter a short-term rise in the market.
An academic adviser to the Chinese central bank said on Tuesday that China must be ready to shift to a "prudent" monetary policy from its current "moderately loose" stance once the economy stabilises.
HONG KONG EXTENDS GAINS
Hong Kong shares were up 1.2 percent by the midday trading break, extending the previous session's gains that saw the benchmark index hit a 28-month high, as property counters gained on expectations local rates will stay low for an extended period.
The Hang Seng Index was up 1.18 percent or 284.74 points at 24,429.41, the highest since early June 2008. The benchmark has risen 5.8 percent so far this week, putting it on track for its best weekly performance since December 2009.
"Quantitative easing in the U.S. and low rates will benefit Hong Kong, particularly asset plays such as property companies," said Ben Kwong, chief operating officer at KGI Asia.
But the market may have limited upside after a sharp rally on Wednesday, when major chart resistance was broken and caught traders by surprise, prompting heavy short-covering, dealers said. The index may face resistance at around 24,500, they said.
"The market is heating up but is not yet at a feverish stage," Kwong said. "We will continue to see rotational buying. Today the favourites are property stocks."
Among Hong Kong developers, Sino Land Co Ltd rose 6.3 percent and New World Development Co Ltd gained 5.2 percent.
Interest rates in Hong Kong were expected to remain low after the Fed maintained its key rates at near zero on Wednesday. Hong Kong tracks U.S. monetary policy because the Hong Kong dollar is pegged to the U.S. currency.
Li & Fung Ltd rose 2.9 percent after the exporter said it would become a sourcing agent for Li Ning Co Ltd brands.
Li Ning was down 0.2 percent. (Editing by Chris Lewis)