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* HSI +0.2 pct, H-shares index + 1 percent
* CSI300 +1.5 percent, Shanghai Comp +1.2 pct
* Materials, banks lead gains ahead of weekend econ data
* PICC sharply higher in HK debut on retail demand
By Vikram Subhedar
HONG KONG, Dec 7 (Reuters) - Hong Kong shares rose on Friday and were poised to round off a strong week at a 2012 high as signs of a recovery in the Chinese economy spurred more inflows into mainland-related equities.
The Hang Seng index were up 0.2 percent to 22,294.8 at the midday trading break. The China Enterprises index of top locally listed mainland firms rose 1.2 percent.
In China, the CSI300 of top Shanghai and Shenzhen listings rose 1.5 percent while the Shanghai Composite rose 1.2 percent.
A shift in sentiment on China among foreign investors has prompted a flow of funds into mainland-related assets ranging from stocks to exchange traded funds (ETFs) and offshore yuan-denominated bonds.
"People were gloomier at this time last year, but now, judging from the flows, they seem to be very optimistic and positioning for policy changes next year in China," said Larry Jiang, chief investment strategist at Guotai Junan International Securities.
According to Citigroup and EPFR data, inflows into China-focused ETFs last week amounted to just under $1 billion, and were the bulk of that period's net inflow into Asia.
Large-cap materials and banking stocks led the rally in Chinese shares with cement and steel producers particularly strong in Hong Kong.
Shantui Construction rose 3.7 percent and was the second-most actively traded stock on the CSI300 following Gree Electric, which fell 5.5 percent.
China Shenhua's 2.3 percent rise made it the biggest boost on the CSI300. Shenhua shares in Hong Kong moved up 1.6 percent.
Cement producers China National Building Materials and Anhui Conch were the top gainers on the H-shares index. Both rose more than 4 percent in healthy volumes.
Trading activity in Hong Kong, which has remained relatively healthy this month, was slightly subdued on the day ahead of U.S. payrolls data that is expected to show a month-over-month drop, largely due to superstorm Sandy.
Shares of insurer PICC Group had a strong trading debut in Hong Kong, rising as much as 7.8 percent as retail investors who missed out on the initial public offering bought the stock.
The gains in Chinese shares came ahead of retail sales and industrial production data over the weekend that is expected to provide more evidence the recovery is gathering pace even as valuations remain cheap.
According to a Credit Suisse analysis that measures price-to-book ratios against return-on-equity, China is the most undervalued market in Asia.
Analysts have become more optimistic on earnings over the past two months and now expect MSCI China constituents to grow earnings by about 9.5 percent over the next 12 months, according to Thomson Reuters I/B/E/S.
In September, which saw the biggest cuts in forecasts in 2-1/2 years, analysts on average expected earnings for the year ahead to grow just 7.4 percent.
A steady improvement in economic data combined with signs that China's new leadership will pursue reforms has lifted the Shanghai Composite up 5.4 percent from its year-low of 1949, hit last week.