Hong Kong shares hit one-month high, but gains lack conviction
(Updates to close)
* HSI climbs 1 pct, CSI300 up 0.5 pct
* China home price fall in May, but developers strong
* HKEx falls after LME acquisition
* Mengniu close at 2-wk high after Arla deal
By Clement Tan and Vikram Subhedar
SINGAPORE/HONG KONG, June 18 (Reuters) - Hong Kong shares closed at a one-month high on Monday, with risky assets back in favour after pro-bailout parties won a slim majority in Greece's election, a result seen as crucial to European leaders' efforts to hold the euro together.
Companies with a sizeable European presence such as HSBC Holdings and Hutchison Whampoa, were among the key gainers, helping the benchmark Hang Seng Index rise 1 percent to its highest close since May 15.
The Hang Seng finished at 19,427.8, off the day's high, which was just shy of its 200-day moving average currently at about 19,593.1. The 38.2 percent Fibonacci retracement of its rise from October lows to February highs is at about 19,644.
In mainland China, the large cap-focused CSI300 Index closed up 0.5 percent at its highest since June 1. The China Enterprises Index of the top Chinese listings in Hong Kong gained 0.8 percent, while the Shanghai Composite rose 0.4 percent.
But Monday's strength came with weak bourse turnover in both markets, suggesting investors remained unconvinced and gains could unravel if not underpinned by substantive catalysts from Europe or China's flash PMI on Thursday.
"There is a mixture of both fresh buying and short-covering in Hong Kong, investors have been pricing in a lot of negativity," said Hong Hao, Bank of Communications International Securities' Hong Kong-based chief equity strategist.
"Europe remains the biggest risk, but there are signs that the economic and earnings cycle for China is starting to turn for the better, so I wouldn't recommend that people get too bearish right now," Hong added.
Part of Hong's assessment was derived from data on Monday that suggested average home prices in China's 70 major cities dipped for the eighth straight month in May. But the pace of decline eased, which he said would give Beijing greater policy leeway.
Chinese developers listed in Hong Kong ended firmer, while some of those listed in mainland markets reversed early losses. China Overseas Land & Investment rose 2.7 percent in strong volume to its highest since April 7, 2010.
The Shanghai property sub-index was up 0.5 percent, while Poly Real Estate climbed 1.6 percent and Shenzhen-listed China Vanke rose 0.9 percent.
China Mengniu Diary Co jumped 6.8 percent in Hong Kong to close at its highest since June 1 after Nordic diary group Arla announced it has become an indirect shareholder, in a move that could help Mengniu improve its product quality and supply chain management.
Mengniu was first plagued by food safety issues four years ago, but its biggest rival in the sector - Inner Mongolia Yili Industrial Group - was again haunted by similar concerns of its own on Monday.
Yili followed Friday's 10 percent plunge with another 4.7 percent decline on Monday. It has now lost more than 14 percent in the last two sessions after recalling baby formula tainted with "unusual" levels of mercury.
LME PURCHASE HURTS HKEX
Exchange operator Hong Kong Exchanges & Clearing (HKEx) fell 4.5 percent in more than double its 30-day average volume as investors punished its decision to pay $2.2 billion for the London Metal Exchange (LME).
The deal to buy LME comes even as HKEx's mainstay business of cash equities trading is going through a particularly rough patch.
Average turnover on the exchange is threatening to dip below levels last seen in the aftermath of the Lehman Brothers bankruptcy in 2008 while it is also set to lose its crown as the world's top IPO destination.
In 2011, fees from trading and listing accounted for 50 percent of the HKEx's revenue. Enthusiasm over the HKEx's unique position to benefit from offshore-yuan-related business, such as RMB-denominated shares, has also waned.
The stock is down nearly 50 percent from its November 2010 highs, pushing the exchange off of its perch as the world's most valuable exchange operator.
Diversifying into commodities trading, a goal long-held by the company's top management, pits the HKEx against more established rivals such as the Chicago Mercantile Exchange and ICE that have a much longer track record of managing commodities derivatives businesses, analysts said.
"In our view, this deal is purely to avoid marginalization of HKEx by adding a commodity business," said Harsh Wardhan Modi, an analyst at JPMorgan, in a note to clients. "As a result, it is very costly." (Editing by Ramya Venugopal)
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