Hong Kong shares jump 3 pct in increased turnover

* Main index headed for third straight day of gains

* Turnover surges as investors buy banks, commodity stocks

* Premium gap between A-shares and H-shares narrows

(Updates to midday)

By Parvathy Ullatil

HONG KONG, May 19 (Reuters) - Hong Kong stocks rose 3 percent in a liquidity bounce on Tuesday, heading for a third straight day of gains, spurred by a rally on Wall Street and a surge in resources stocks on signs of a recovery in demand.

Shares in HSBC (0005.HK) rose 4.9 percent, partly helped by news that China's cabinet had given approval to the Britain-based lender and Bank of East Asia (0023.HK) to issue yuan bonds in Hong Kong.

The move will give the banks another source for yuan financing. Bank of East Asia (0023.HK) was up 4.5 percent.

The benchmark Hang Seng Index .HSI ended the morning session 515.78 points higher at 17,538.69.

Turnover jumped to HK$50.8 billion from midday Monday's HK$32.7 billion. Surging volumes sent shares in bourse operator Hong Kong Exchanges & Clearing (0388.HK) up 4.5 percent.

"With macro data finally stabilising, liquidity flows into risk assets have increased steadily in the past few weeks, giving equity markets a boost. We are still not convinced of a longer-term recovery, although we think this rally can continue for several months," said Andrew Orchard, analyst with RBS, in a note on Tuesday.

Other market watchers agreed that the more than two-month rally in Hong Kong, fuelled by increased confidence in a quick turnaround in the Chinese economy, was likely to be interrupted only in event of an external shock from the U.S.

The China Enterprises Index .HSCE of top mainland companies was up 2.8 percent at 10,066.85 as the Shanghai Composite Index .SSEC scaled a 9-½ month intraday high.

The premium gap between yuan-denominated A shares listed on the mainland bourses and their Hong Kong-listed counterparts, H shares, dropped to 28.5 percent with top bank stocks including ICBC (1398.HK) (601398.SS) and China Construction Bank (0939.HK) (601939.SS) commanding nearly the same price on both exchanges.

Energy stocks soared after crude prices rose nearly 5 percent to a six-month high overnight as violence in top African crude exporter Nigeria and a fire at a key U.S. East Coast refinery revived supply concerns.

Asia's largest oil and gas producer PetroChina (0857.HK) advanced 5.8 percent, while offshore oil specialist CNOOC (0883.HK) added 4.4 percent.

Other resources stocks also gained as analysts noted signs of improving global demand for raw materials, mainly driven by China.

Aluminum Corp of China (2600.HK), better known as Chalco, jumped 6.3 percent, while Angang Steel (0347.HK) rose 5.8 percent.

Shipping stocks extended their rally after the Baltic Exchange's main sea freight index .BADI, which tracks rates to ship dry commodities, hit a fresh 2009 high on Monday powered by Chinese demand for iron ore, coal and grains.

China Cosco (1919.HK), the country's largest shipping conglomerate, advanced 4.2 percent, while another dry bulk shipper China Shipping Development (1138.HK) jumped 3.6 percent.

China Resources Land Ltd (1109.HK) dropped 1.1 percent to HK$15.10 after the property developer tapped the market for HK$4.3 billion (US$551 million), through a share sale to a major shareholder, to raise capital for future acquisitions of its land bank and for working capital.

The company placed its shares at HK$14.34 each, a 6.03 percent discount to the closing price.

(Editing by Chris Lewis)