China stocks rise nearly 2 pct, banks lead

SHANGHAI Aug 21 (Reuters) - The Shanghai Composite Index .SSEC rose nearly 2 percent on Friday, led by banks after strong earnings reports and surmounting a near-term technical hurdle.

The index extended Thursday's 4.5 percent gain after a tentative start to trade, as a recent 20 percent slide in just two weeks brought valuations down to more attractive levels while China's economic fundamentals remained solid.

The index rose nearly 2 percent to 2,969.521 at midmorning, although by 0310 GMT it had pulled back to 2,948.570, up 1.27 percent.

The index remains headed for a 3.4 percent drop for the week, however, despite the gains of the past two days, with sentiment still bruised by the recent pullback.

"Investor sentiment has not yet fully recovered despite yesterday's rebound," said analyst Zhou Lin at Huatai Securities in Nanjing. "So they will watch the market's performance as well as economic fundamentals to decide on their investments."

He expected the market might soon test the 3,000 point level, which could offer firm resistance.

Industrial & Commercial Bank of China (601398.SS) rose 2.74 percent to 4.88 yuan after posting a second-quarter net profit that beat forecasts. [ID:nPEK347672]

Shenzhen Development Bank (000001.SZ) gained 3.43 percent to 22.30 yuan after saying its net profit in the first half rose 7.8 percent to 2.3 billion yuan.

Recently listed shares were a drag on the market, however, with Everbright Securities (601788.SS), which debuted on the Shanghai market on Tuesday, slumping 2.90 percent to 2.81 yuan, while Sichuan Expressway (601107.SS), which listed in late July, fell 0.97 percent to 7.17 yuan.

Technically, the index managed to break above the closely watched five-day moving average just above 2,900 points, which analysts said could indicate the start of a solid technical rebound.

The fundamentals appeared more supportive, after the index's recent tumble lowered Chinese share valuations to a more reasonable average forecast price earnings ratio of about 26 times, against this year's high of 32 times in early August.

China's new bank loans are seen rebounding to about 500 billion yuan ($73 billion) in August after shrinking to 356 billion yuan in July, although banks will continue to curb lending in the second half, the official China Securities Journal said. [ID:nSHA241087]

A government think-tank said in a research report published on Friday that China's gross domestic product in the third quarter was likely to grow about 8.5 percent from a year earlier, picking up from the second quarter's 7.9 percent pace, and there was no need to change monetary policy. [ID:PEK242921] (Reporting by Claire Zhang and Edmund Klamann)