Hong Kong shares climb 1.1 pct on China outlook

* Airlines soar on turnaround hopes, fare increase talk

* Property firms gain on improved outlook for home prices

* BOC Hong Kong jumps on news of yuan-denominated bonds

(Updates to midday)

By Parvathy Ullatil

HONG KONG, April 20 (Reuters) - Hong Kong shares rose 1.1 percent on Monday, with Chinese counters leading the charge on reports earnings had picked up pace in March while local property firms rallied on an improved outlook for home prices.

Profits at China's state-owned enterprises (SOEs) rose 26 percent in March from a year ago and 86 percent from the previous month, Xinhua reported over the weekend, citing an official with China's state asset watchdog. [ID:nPEK343398]

The gain compared with a 33.3 percent annual drop in profits during the first two months, said Li Rongrong, Minister in Charge of the State-owned Assets Supervision and Administration Commission (SASAC).

"This is especially good news for the banks as it means asset quality is improving," said Philip Chan, head of research with CAF Securities, a unit of the Agricultural Bank of China.

Chinese banks led gains with Bank of China (3988.HK) up 3.9 percent while Bank of Communications (3328.HK) had risen 4.2 percent.

The benchmark Hang Seng Index .HSI ended the morning session up 172.99 points at 15,774.26.

Turnover had slowed to HK$33.3 billion ($4.30 billion) from HK$37.3 billion by midday Friday.

China outlined its plan, after the Hong Kong chief executive met the Chinese premier on the sidelines of the Boao forum in Hainan on Saturday, to help Hong Kong fight the recession including making it easier for firms there to borrow money and sell goods on the mainland.

BOC Hong Kong (2388.HK) shot up 4.2 percent after China said over the weekend that it would allow Hong Kong banks on the mainland to issue yuan-denominated bonds in the territory. [ID:nHKG340297]

Another potential beneficiary of China's support measures, cruise line operator Star Cruises (0678.HK) soared 37.8 percent to HK$1.13 on Monday on news China was considering allowing mainland tourists to visit Hong Kong while on Taiwan cruises.

The new plan, which is expected to fetch Hong Kong an additional HK$100 million in revenue every year, will allow mainland Chinese tourists to sail to Taiwan, passing through Hong Kong, The Standard newspaper reported.

The China Enterprises Index .HSCE of top mainland firms was 1.9 percent higher at 9,220.53.

China's top three airlines soared on Monday on hopes that they may return to profit this year with the faster-than-expected rebound in domestic air travel in the first quarter expected to continue. Talk of fare increases also helped the rally.

Air China (0753.HK) rose 9.6 percent to HK$3.55 building on Friday's gains after the flag carrier, which reported a 9.15 billion yuan ($1.3 billion) net loss last year, said it was profitable in the first quarter. [ID:nHKG306793]

China Eastern Airlines (0670.HK) vaulted 10.5 percent to HK$1.37, while China Southern Airlines (1055.HK) piled on 11.2 percent. Both carriers, due to release quarterly figures later this month, are also expected to see positive results.

Local property stocks carried forward some of Friday's strength as analysts revised upwards their estimates on residential property prices for 2009 on signs of stabilisation in the global economy.

Li Ka-shing's property conglomerate Cheung Kong Holidngs (0001.HK) gained 2.9 percent, while property conglomerate New World Development (0017.HK) added 5.3 percent.

Gold miner Zijin Mining (2899.HK) sank 3.9 percent as the price of the precious metal stayed weak after hitting a three-month low last week. [ID:nT350341]

Investors seem to have turned cautious about an apparent peaking of investment demand after holdings for the world's largest exchange-trade gold fund marked its largest decline in 6-½ months. (Reporting by Parvathy Ullatil; Editing by Jonathan Hopfner)