HK shares up 1.7 pct, HKEx hits 9-1/2-mth high

* HKEx surges to 9-1/2-month high

* Cathay Pacific tops blue chip gainers, up 9.6 pct

* Fund flow driven rally could lose steam by end-May, analyst (Updates to midday)

By Alison Leung

HONG KONG, May 11 (Reuters) - Hong Kong shares steamed ahead to rise 1.7 percent at midday on Monday, their eighth straight day of gains, on the strength of HSBC (0005.HK) and HKEx (0388.HK) but selling was seen in Chinese resources and shipping stocks on concerns about a looming market consolidation.

Cathay Pacific Airways (0293.HK) outperformed the market by jumping 9.6 percent as buyers shrugged off fears of a H1N1 flu outbreak and oil prices stayed at near a 6-month high, which could help lower the airline's oil hedging losses.

A hefty inflow of funds to Asia has lifted the city's benchmark Hang Seng Index .HSI by more than 20 percent in the past two weeks to a seven-month high, and brokers said the market was likely to head for a consolidation.

"It seems that money inflows in Asia have started to slow down and there is profit-taking around the region. I believe the market could see its half-year peak before the end of May," said Steve Cheng, associate director at Shenyin Wanguo.

Shares of Hong Kong Exchange & Clearing, Asia's largest listed bourse operator, hit a 9-1/2-month high of HK$125.7 in early trade on optimism that stock trading interest had returned. They rose 4.8 percent to close the morning session at HK$124.

Under the new supplement to the mainland and Hong Kong Closer Economic Partnership Arrangement (CEPA), China will explore the setting up of an index-tracking exchange-traded fund (ETF) to track Hong Kong-listed shares. Brokers said that should lift stock trading volume in Hong Kong.

The Hang Seng Index was up 289.20 points at 17,679.07 by midday. Turnover rose to HK$51.17 billion ($6.60 billion) from midday Friday's HK$44.2 billion.

Cheng said HKEx shares, which have risen nearly 50 percent in two weeks, looked expensive as the current value had implied an average daily trading volume of HK$80-100 billion.

HSBC rose 5 percent to HK$69.25, defying expectations of a wider net loss for its U.S. unit HSBC Finance Corp in the first quarter.

PROFIT-TAKING

But uncertainties about how quickly the global consumer market will recover put pressure on shipping stocks, sending China COSCO (1919.HK) down 1.8 percent. CSCL (2866.HK) also lost 2.25 percent.

Construction-linked firms such as Cement maker Anhui Conch (0914.HK) fell 2.8 percent and Zijin Mining (2899.HK) was down 2.7 percent despite Chinese Premier Wen Jiabao suggesting the government may take further steps to support the economy.

"Turnover has picked up with foreign money flowing in but the recent market rally is not supported by fundaments and corporate earnings are still weak," said Alfred Chan, chief dealer at Cheer Pearl Investment Ltd.

The China Enterprises Index of top mainland companies .HSCE had risen 0.63 percent to 10,114.73.

China Construction Bank Corp (0939.HK) eased 2.7 percent to HK$5.11, after reports that Bank of America (BAC.N) may place its shares in CCB this week. However, sources close to the deal said the likely buyer may not wish to take as big a chunk as before because CCB's share price has jumped.

CCB's stock rose more than 10 percent in two days to hit a 7-1/2-month closing high on Friday after Bank of America said it wanted to remain a strategic partner with the Chinese lender and would "always have a substantial ownership position" in the bank. [ID:nN07447438].

China CITIC Bank (0998.HK) gained 1.5 percent to HK$4.07 after the bank agreed to buy 70.32 percent of CITIC International Financial Holdings from its controlling shareholder for HK$13.56 billion. CITIC International holds Hong Kong-based CITIC Ka Wah Bank. [ID:nSEO174054]. ($1=HK$7.749)

( Editing by Jacqueline Wong)