Hong Kong shares near 2012 high, China up on signs economy steadying

Thu Oct 18, 2012 1:05am EDT

(Updates to midday)

* HSI +0.6 pct, H-shares +1.3 pct, CSI300 +1.2 pct

* Stablizing economy could mean no strong Beijing support until March: Julius Baer

* China Coal hits 2-mth high ahead of Q3 earnings Monday

* Li & Fung jumps after more positive U.S. data

By Clement Tan

HONG KONG, Oct 18 (Reuters) - Hong Kong's Hang Seng Index climbed to a seven-month high and China shares made solid gains on Thursday, with growth-sensitive sectors leading the way as investors took heart from data signalling that China's slowdown was drawing to an end.

Official data showed the world's second-largest economy grew 7.4 percent in the third quarter from a year earlier -- its seventh-straight quarter of slowing growth.

But, September industrial output and retail sales data were slightly better than expected, raising hopes that the Chinese economy may have turned a corner.

The Hang Seng rose 0.6 percent to 21,546.1, and was set for a sixth-straight daily gain, equalling a winning streak recorded a year ago. The benchmark is now just shy of the 2012 intra-day high at 21,760.3, recorded on Feb. 20.

The China Enterprises Index of the top Chinese listings in Hong Kong rose 1.3 percent.

Gains in Shanghai came in the strongest midday volume in a month.

The CSI300 Index of the top Shanghai and Shenzhen was up 1.2 percent at midday, while the Shanghai Composite Index gained 1 percent.

"Investors have been adding more risk to their portfolio, with funds trying to improve their performance as the year comes to a close," said Alan Lam, Julius Baer's Greater China equity analyst.

"But with data suggesting growth in China has stabilised, the current leadership will not see any need to act more aggressively," Lam said, adding that strong action was only likely to come after the leadership transition is completed in March.

Aluminum Corporation of China (Chalco) rose 3.1 percent in Hong Kong and 2 percent in Shanghai. Chalco is now at its highest since May in Hong Kong, having gained more than 12 percent so far this month.

Shares of Li & Fung, a global supply chain manager for the likes of Walmart Inc and Target was up almost 4 percent after better-than-expected U.S. housing data on Wednesday followed positive retail sales data earlier this week.

CHINA COAL CATCHING UP

Although turnover in Hong Kong improved over the past week, it remains relatively weak with volumes concentrated in a few sectors.

This, along with recent weakness in the year's outperformers, pointed to little fresh capital entering the market with investors rotating into laggard sectors ahead of the third-quarter earnings season, starting next week.

China Coal Energy Co Ltd , the country's second-largest coal producer, rose 2.8 percent in Hong Kong to a two-month high. In Shanghai, China Coal rose 1.8 percent.

After lagging the market for most of the year, China Coal is now up almost 10 percent in Hong Kong this month ahead of its third-quarter earnings, expected on Monday.

It is still down more than 7 percent this year, compared to the 17 percent gain on the Hang Seng Index and the 7 percent gain on the China Enterprises Index. China Coal is currently trading at nearly half its historical median price-to-book value, according to Thomson Reuters StarMine.

In the last 30 days, three of 35 analysts have shaved their full year 2012 earnings-per-share estimate for China Coal by an average of 10.2 percent, according to StarMine. (Editing by Simon Cameron-Moore)

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