Shanghai shares have best day in four months, lifting Hong Kong

Fri Mar 21, 2014 5:05am EDT

* HSI +1.2 pct, H-shares +2.4 pct, CSI300 +3.4 pct

* CSI300 has biggest gain in 6 months on preferred shares policy

* China indexes lifted by property, banking stocks

* Li & Fung up 21.2 percent on good earnings (Adds comment, updates stocks to close)

By Alice Woodhouse and Chen Yixin

HONG KONG/SHANGHAI, March 21 (Reuters) - Chinese shares rallied on Friday, led by banks and property shares, amid speculation the country's securities regulator would reveal details of a preferred pilot scheme and news of looser finance restrictions for developers.

After the market closed, the China Securities Regulatory Commission said three kinds of listed companies would be allowed to issue preferred shares as it unveiled rules for a long-awaited pilot scheme for such issues.

Hong Kong shares ended up, lifted by the rally in Chinese shares in the afternoon session, on gains led by Li & Fung and the property sector.

The Shanghai Composite Index closed up 2.7 percent at 2,047.62 points, its best day since Nov. 18. It gained 2.2 percent for the week, its best in five weeks. Volume in Shanghai was at 14.4 billion, double the 20-day moving average.

The CSI300 of the leading Shanghai and Shenzhen A-share listings rose 3.4 percent on the day, its biggest gain in more than six months. It was up 1.7 percent for the week. The CSI300 had opened at its lowest level since 2009.

The Hang Seng Index closed up 1.2 percent at 21,436.70, its best day in three weeks, with global exporter Li & Fung surging 21 percent as investors cheered better-than-expected earnings and a spinoff plan.

The benchmark index closed down 0.5 percent on the week for its fourth consecutive week of losses.

The China Enterprises Index of the top Chinese listings in Hong Kong rose 2.4 percent on the day and 1.4 percent for the week, its largest weekly gain in five weeks.

The index of mainland enterprises had entered a bear market on Thursday, falling more than 20 percent since the start of December.

The market was further boosted after the Shanghai Securities News reported regulators are reviewing financing applications from listed developers, which analysts said may help reduce default risk for both banks and developers.

"The market was expecting the CSRC to announce new details on preferred shares issues and the issue of new shares," said Cao Xuefeng, head of research at Huaxi Securities in Chengdu.

While the index tracking mainland enterprises has dropped almost 20 percent since the start of December, investors on Friday bought selected stocks based on earnings.

Chinese banks and property firms led the strong gains on Friday afternoon. Shanghai Pudong Development Bank Co jumped 10 percent and Industrial Bank Co. rose 6.6 percent to a one-month high.

China Overseas Land rose 7.1 percent, while China Resources Land spiked 6.5 percent in its best day in more than eight months.

China Vanke, the country's largest developer, gained 8 percent after its biggest shareholder China Resources raised its stake in the company to 15 percent.

In Hong Kong, the Hang Seng Index was also boosted by GOME Electrical Appliances, which jumped 4.2 percent after the company reported better-than-expected 2013 profit.

China Mobile, the world's largest carrier by number of subscribers, fell for a second day, dropping 3.7 percent after its 2013 profit missed analyst expectations. (Writing by Yimou Lee in HONG KONG; Editing by Eric Meijer)