Hong Kong stocks reverse course on Shanghai gains

(For Shanghai market reports, click [.SS])
(Updates to Wednesday close)

By Alison Leung

HONG KONG, May 21 (Reuters) - Hong Kong stocks recouped early
losses to close 1.2 percent higher on Wednesday after a sharp
rebound in Shanghai on speculation that Beijing will soon allow
state-set prices for oil products, such as gasoline, to rise.

China's key stock index .SSEC jumped 2.93 percent after
Sinopec (600028.SS: Quote, Profile, Research, Stock Buzz) leapted its 10 percent daily limit and
PetroChina 601875.SS surged 6.6 percent in Shanghai.

A raft of speculation -- from Beijing preparing to allow oil
product prices to rise and increasing government subsidies to oil
refiners to loosen windfall taxes -- boosted sentiment on the
sector and helped to lift the markets.

Sinopec (0386.HK: Quote, Profile, Research, Stock Buzz), Asia's largest refiner, finished up 4.3
percent and PetroChina gained 2.2 percent in Hong Kong.

However, these measures, if they materialise, may help narrow
losses in the oil processing sector but should not be enough to
help it to return to profitability, said Alex Tang, research
director at Core Pacific-Yamaichi International.

The benchmark Hang Seng Index .HSI erased a 1.36 percent
opening loss to close the day up 1.16 percent at 25,460.29.

The China Enterprises Index of Hong Kong-listed companies
.HSCE, or H shares, finished 1.15 percent higher.

Mainboard turnover eased to HK$79.23 billion ($10.16 billion)
from HK$82.8 billion on Tuesday.

ENERGY COUNTERS UP

China's top offshore oil and gas producer, CNOOC (0883.HK: Quote, Profile, Research, Stock Buzz),
topped the blue chip list of gainers and most active stocks to
close up 5.9 percent. The company, which has limited processing
business, will benefit from record oil prices. [O/R]

Oil refiners are operating in deep losses as the gap between
international oil prices and controlled domestic product prices
keeps widening.

"Their break-even point is around $69 per barrel, but oil
prices are now near $130. The government probably would not allow
product prices to rise too steeply because of inflation
concerns," Tang said.

Rising coal prices and a severe shortage of the carbon lifted
stocks of coal producers. [ID:nSHA329240]

Yanzhou Coal (1171.HK: Quote, Profile, Research, Stock Buzz) rose 4.1 percent, China Coal (1898.HK: Quote, Profile, Research, Stock Buzz)
gained 2.8 percent and China Shenhua (1088.HK: Quote, Profile, Research, Stock Buzz) edged up 1.7
percent.

Lenovo (0992.HK: Quote, Profile, Research, Stock Buzz), the world's No. 4 PC maker, rose 3.1
percent ahead of its quarterly results due on Thursday. It was
expected to see a $66 million profit from the sale of its mobile
unit, which could double its earnings in the fourth quarter,
analysts said. [ID:nHKG41418]

Brokers said record oil prices had heightened fears over
global inflation and worries about the impact of China's
devastating earthquake could also start to unnerve investors.

"I believe global markets have largely completed their latest
round of a rebound and Hong Kong stocks could zig-zag down in the
short-term," said Andrew To, sales director at Tai Fook
Securities.

Tang also said Hong Kong stocks were more likely to trend
down than up in the near future.
(Reporting by Alison Leung; Editing by Anne Marie Roantree)