China shares up despite weak PMI, Hong Kong at one-week high

Mon Mar 24, 2014 1:09am EDT

* HSI +1.1 pct, H-shares +2 pct, CSI300 +0.4 pct

* China finance and insurance strong on preferred share policy

* Hong Kong at one-week high on short-covering

* Hutchison falls on Temasek deal (Updates to midday)

By Alice Woodhouse and Natalie Thomas

HONG KONG/SHANGHAI, March 24 (Reuters) - Shares in Hong Kong and China shares rose on Monday as a weak factory survey heightened expectations that Beijing will have to unveil stimulus measures soon to avert a sharper downturn in the world's second-largest economy.

China's factory activity contacted for the third month in a row in March, falling to an eight-month low of 48.1 from February's final reading of 48.5, the flash Markit/HSBC Purchasing Managers' index showed.

By midday, the Hang Seng Index was up 1.1 percent at 21,673.21 points, its highest since March 13. The China Enterprises Index of the top Chinese listings in Hong Kong rose 2 percent to its highest since March 7.

The CSI300 of the leading Shanghai and Shenzhen A-share listings rose 0.4 percent, while the Shanghai Composite Index was up 0.5 percent at 2,057.70 points.

"It (the flash PMI) was another bad sign the Chinese economy is softening. It was pretty much expected, so a lot of investors are looking for the Chinese government to roll out some meaningful stimulus on infrastructure or urbanisation themes," said Jackson Wong of Tanrich Securities in Hong Kong.

Market sentiment was also buoyed by expectations that Beijing will soon allow big firms such as banks to sell preferred shares to raise capital, averting a potential deluge of sales of common stock which would dilute valuations.

China's securities regulator announced rules for a pilot programme allowing listed companies to issue preferred shares after the market close on Friday. Analysts have widely predicted banks will be the first to issue preferred shares in the trial.

"The market has carried over Friday's momentum because the Chinese authorities approved the top 50 companies to issue preferred shares. That's very good news for a lot of companies, especially for banks, because they can immediately refuel some of their capital and liquidity needs," Wong said.

Finance and insurance sectors saw the biggest gains in mainland markets, with Industrial and Commercial Bank of China and Minsheng Bank posting gains of 1.2 percent and 1.1 percent, respectively.

Investors are awaiting earnings from Chinese banks such as Agricultural Bank of China and China Construction Bank later this week.

Ports-to-telecoms conglomerate Hutchison Whampoa fell 4.7 percent after it announced Singapore state investor Temasek holdings agreed to buy a 24.9 percent stake in its retail business A.S. Watson for about HK$44 billion ($5.7 billion). ($1 = 7.7588 Hong Kong Dollars) (Editing by Kim Coghill)

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