HK shares rebound on HSBC, but China properties drag

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By Parvathy Ullatil

HONG KONG, Oct 28 (Reuters) - Hong Kong shares recovered from their biggest one-day percentage drop since 1997 on Tuesday, led by HSBC (0005.HK), but the main index trimmed gains to 1.5 percent as Chinese property stocks plunged on disappointing earnings from the country's biggest listed developer.

"This a just a short term rebound. The index could gain up to 1000 points only to fall right back again," said Patrick Shum, strategist with Karl Thomson Securities.

"The fundamentals are not looking good at all and private equity funds and hedge funds are cashing out. There is also talk that the people manging the mandatory provident funds are also starting to sell so they can buy back at a cheaper price."

Shares in Europe's largest bank, HSBC (HSBA.L), soared 6.8 percent to HK$80.10 after it shed 25 percent of its market value in the previous two sessions on growing signs of trouble in emerging markets.

But shares in property developer China Overseas Land Investment (0688.HK) slid 18.7 percent after Shenzhen-listed China Vanke (200002.SZ) posted a 13 percent drop in third-quarter earnings and said it would not be able to meet its previously set profit target.

Guangzhou R&F Properties (2777.HK) plunged 21.1 percent, building on Monday's massive 22.3 percent slide as support measures from the government failed to restore investor confidence in the sector.

At 0327 GMT, the benchmark Hang Seng Index .HSI was up 166.64 points at 11,182.48 after climbing 7 percent earlier. The main index plunged 12.7 percent on Monday and has dropped 58 percent so far this year.

Shares of Bank of East Asia (0023.HK) dropped 8.8 percent on Tuesday after Hong Kong's fifth-ranked lender warned that its annual profit would fall substantially on the disposal of a spiralling debt portfolio. [ID:nHKG116592]

The stock trimmed losses to 4 percent after having shed 16 percent ahead of the profit warning on Monday.

The China Enterprises Index .HSCE of top locally listed mainland Chinese companies gained 0.2 percent to 5,001.84.

China Life (2628.HK) gained 2.5 percent after JP Morgan upgraded the stock to overweight from neutral, saying earnings of the Chinese insurer looked relatively secure for this year.

The country's largest life insurer on Monday said third-quarter net profit fell more than 70 percent as a slump in China's stock markets pared its investment income.

But JP Morgan analysts said the recent correction provided a good opportunity to enter the biggest insurance franchise in the world at run-off valuations and its conservative management style bodes well in the current market environment.

China Merchants Bank (3968.HK) defied gains in other financial counters to give up 10.8 percent on Tuesday on talk that the company will announce substantial provisions on investment losses in foreign currency bonds.