HK shares hit 8-mnth high; China shares lag

* HK stocks surge on short covering ahead of futures expiry

* China stocks lag ahead of fourday weekend

* Banks, refiners lead gains in both markets

(Updates to close)

By Parvathy Ullatil & Claire Zhang

HONG KONG, May 27 (Reuters) - Hong Kong shares shot up 5.3 percent to an eight-month high in resurgent volumes on Wednesday, with encouraging consumer confidence data from the United States shining the spotlight on a likely global economic recovery.

But the mainland markets lagged, with the Shanghai Composite Index .SSEC rising 1.7 percent, as caution prevailed ahead of a four-day weekend in China.

Hong Kong's market will be closed on Thursday for the Dragon Boat Festival holiday.

Chinese banks soared in both markets on optimism that new loans in the second quarter would reach 1.5 trillion-1.8 trillion yuan ($220 billion-264 billion). To complement the Chinese government's 4 trillion yuan economic stimulus package, banks lent a record 5.17 trillion yuan in the first four months of 2009 -- more than Beijing's minimum target of 5 trillion yuan for the whole of the year.

Minsheng Bank (600016.SS), the most active traded Shanghai A share climbed 6.85 percent to 6.71 yuan, while Bank of China (3988.HK), among Hong Kong's most actively traded stocks, jumped 9.5 percent to HK$3.23.

Refinery stocks PetroChina and Sinopec also found favour in Hong Kong and Shanghai as investors bet on a likely fuel price increase over the weekend, under China's newly adopted, more market-aligned pricing methodology.

ANOTHER GOOD MONTH FOR HK IN JUNE?

The benchmark Hang Seng Index closed up 893.71 points at 17,885.27 after climbing to 17,984.02 points intraday, its highest level since early October 2008.

The China Enterprises Index of top mainland companies advanced 5.4 percent to 10,202.25.

Turnover also picked up pace, jumping to a two-week high of HK$93.1 billion ($11.9 billion) from Tuesday's HK$56.3 billion.

Analysts attributed the strong volumes to derivative-related short covering ahead of May index futures contract expiry later on Wednesday.

"As long as the liquidity keeps flowing in we will keep riding this rally. June could be another month of surprises as funds which have too much cash on hand will be scrambling to invest before the half-year end," said Steven Leung, director with UOB Kay Hian.

Li & Fung (0494.HK), which counts retail giants including Wal-Mart among its customers, soared 10.8 percent to HK$21.30 after U.S. consumer confidence data showed its biggest monthly jump in six years.

Banking stocks took the lead with the UK's top lender HSBC (0005.HK) gaining 5.8 percent, while the world's biggest bank by market capitalisation, ICBC (1398.HK), advanced 4.1 percent.

Asia's largest oil and gas producer PetroChina (0857.HK) advanced 5.8 percent as crude oil hovered near a six-month high above $62 per barrel, while a sharp jump on the global dry bulk freight index sent shares in China Cosco (1919.HK) up 11.8 percent.

Bucking the trend, China's Xinyi Glass (0868.HK) tumbled 6.7 percent to HK$5.86 on a plan by the company's controlling shareholder to sell $126.4 million worth of shares at a 7.6 percent discount to the stock's last closing price.

IPO NEWS EFFECT SEEN LIMITED IN CHINA

The Shanghai Composite Index .SSEC ended up 44.355 points at 2,632.930, a one-week closing high, and was up 6.3 percent for the month of May.

But losing Shanghai A shares outnumbered gainers by 458 to 447, as heavily weighted shares led the rise.

Turnover in Shanghai A shares shrank to 103.0 billion yuan ($15.1 billion) from Tuesday's 117.8 billion yuan, ahead of a long holiday weekend.

The China stock market will be closed on Thursday and Friday for the Dragon Boat Festival holiday.

PetroChina (601857.SS), the most heavily weighted stock in the index, advanced 4.4 percent to 13.66 yuan, while Sinopec (600028.SS) rose 2.4 percent to 10.38 yuan.

Analysts said last Friday's announcement of a resumption of IPOs as early as June may have a limited negative impact as officials were expected to ensure that IPOs would not upset market stability.

"The index is still likely to hit a new high for the year in the first half of June, despite a likely IPO restart," said Zhou Lin, analyst from Huatai Securities.

But other analysts said shrinking turnover on the exchnage suggested investors were wary about upcoming IPOs in June.

"Large caps lifted the index fast; investors had better be cautious next month as the effect of IPOs is still likely to weigh on sentiment and trigger profit-taking," said Qian Xiangjing, an analyst from CITIC-Kington Securities.

Shenzhen-linked shares outperformed, with Shenzhen Special Economic Zone Real Estate (000029.SZ) climbing 4.8 percent to 5.01 yuan, after official media reported government plans for reforms in the southern investment centre and closer links with Hong Kong. [ID:nSHA323289]

Zhongjin Gold (600489.SS) jumped 9.3 percent to 76.73 yuan after saying it would bid for two mining companies.

(Reporting by Parvathy Ullatil in HONG KONG and Claire Zhang in SHANGHAI; Editing by Jacqueline Wong and Chris Lewis)