HK shares reverse losses in biggest pct jump in 11 yrs

* HSI posts biggest percentage gain in 11 years

* HSBC rallies 20 pct, its biggest gain since Oct. 97

* China properties mauled after Vanke earnings disappoint

* Kowloon Development sheds 41.7 pct on investment losses

(Updates to close)

By Parvathy Ullatil

HONG KONG, Oct 28 (Reuters) - Hong Kong shares soared 14.4 percent on Tuesday, clawing back Monday's losses and notching up their biggest one-day gain in 11 years after a five-day, 28 percent rout rendered valuations attractive, encouraging investors to snap up bargains.

Shares in Europe's largest bank, HSBC (HSBA.L), led the charge with a 20 percent jump, its biggest single day percentage gain since October 1997. It had shed 25 percent of its market value in the previous two sessions on growing signs of trouble in emerging markets. The stock closed at HK$90 on Tuesday.

"The markets were completely oversold on Monday. With the Hong Kong market being one of the last bastions for pure short selling we saw a lot of funds dumping U.S. dollar-linked assets and switching to home currencies," said Peter Lai, director with DBS Vickers.

"But today we saw the return of short covering, especially from long-term funds which find a lot of value in this market."

But shares in property developer China Overseas Land Investment (0688.HK) slid 8 percent after Shenzhen-listed China Vanke (200002.SZ) posted a 13 percent drop in third-quarter earnings and said it would not meet its previously set profit target.

Guangzhou R&F Properties (2777.HK) plunged 12.6 percent, building on Monday's massive 22.3 percent slide as support measures from the government failed to restore investor confidence in the sector. The stock fell to a new life low of HK$2.43 on Tuesday.

The benchmark Hang Seng Index .HSI closed up 1,580.45 points at 12,596.29, after it plunged 12.7 percent on Monday.

But the main index is still 60 percent off its all-time high hit last October and down 55 percent so far this year, and market watchers reckon the bottom remains elusive.

"We don't know whether this is the fabled 'capitulation' because we have no idea just how far the hedge fund sector has to shrink," said HSBC analysts led by Kevin Gardiner, head of global equity strategy.

"...as we'd feared, there are few places to hide: the notion of 'decoupling' was always wishful thinking in a globalised equity market, and portfolio liquidation is further making a mockery of many sectoral and regional analyses."

Mainboard turnover bulked up to HK$66.1 billion ($8.5 billion) from HK$56.8 billion on Monday, partly helped by buying interest ahead of Thursday's futures expiration.

Shares of Bank of East Asia (0023.HK) recovered from early steep losses to climb 10.2 percent after investors shrugged off a profit warning from the bank. Hong Kong's fifth-ranked lender warned on Monday that its annual profit would fall substantially on the disposal of a spiralling debt portfolio. [ID:nHKG116592]

"We believe the more positive aspect has been management's commitment to facing the reality of the current financial crisis and reducing the risk on the bank's balance sheet, and its actions may have removed a key hangover for the share price," said Todd Dunivant, head of regional bank research with HSBC.

HSBC upgraded the stock to overweight from neutral after the he stock shed 65 percent of its value in just three months.

The China Enterprises Index .HSCE of top locally listed mainland Chinese companies surged 13.9 percent to 5,683.06.

China Life (2628.HK) soared 13.9 percent after JP Morgan upgraded the stock to overweight from neutral. 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 as its conservative management style bodes well in the current market environment.

Other badly-bruised Chinese financial stocks also staged a strong recovery, with top lender ICBC (1398.HK) advancing 16.4 percent while smaller rival China Construction Bank (0939.HK) shot up 23.3 percent.

Cathay Pacific (0293.HK), Asia's third largest airline, soared 30.1 percent on Tuesday. UBS upgraded the stock to buy citing its resilience during various crises in the past.

Shares of Hong Kong property investment firm Kowloon Development Co Ltd (0034.HK) plunged 41.7 percent after it estimated HK$3.7 billion ($474.4 million) in losses from financial investments from Jan. 1 to Oct. 22. The stock fell to an all-time low of HK$1.19 early on Tuesday.

Goldman Sachs on Tuesday cut Kowloon Development to sell from buy amid the unexpected treasury loss and cut the target price by 78 percent to HK$1.75. (Editing by Anne Marie Roantree)