(Corrects Hang Seng Index level in fourth paragraph)
* HSI +0.4 pct, H-shares -0.5 pct, CSI300 +0.6 pct
* Property sub-index at highest since December 16
* Hong Kong property shares also lifted
By Natalie Thomas and Chen Yixin
SHANGHAI, April 2 Mainland and Hong Kong property shares surged on Wednesday pushing local indexes into positive territory, after state media reported that several cities may relax house ownership restrictions.
The CSI300 property sub index <.CSICMREI > was up 4.0 percent in morning trading, its highest level since December 16. The spike was triggered by a Shanghai Securities Journal report that local governments in Hangzhou and Changsha are considering a range of policies to promote the market, citing anonymous sources.
By Midday, the CSI300 index of the largest Shanghai and Shenzhen A-share listings was up 0.6 percent, while the Shanghai Composite Index added 0.4 percent to reach 2055.99 points.
The Hang Seng Index was up 0.4 percent at 20,121.53 points. The China Enterprises Index of the top Chinese listings in Hong Kong dropped 0.5 percent.
A total of seven property companies listed in the Shanghai and Shenzhen stock market hit their 10 percent daily limits on the news, including Huayuan Property Co, Beijing Dalong Weiye Real Estate Development Co and China Calxon Group Co.
China's red-hot property market has lost some steam since late 2013 as local governments tightened controls on speculative buying, and as banks made it harder for home buyers and small developers to get loans.
Investor reaction to Wednesday's report suggest many believe the government could now be about to soften its stance on property ownership.
"Previously, the government repeatedly talked about controlling the property market, but now they aren't saying anything about this and instead there have been signs of easing policies," said Tian Weidong, head of research in Kaiyuan Securities in Xi'an.
Tian said property shares could have room to rise further on development in some second and third-tier cities as the Chinese government continues its urbanisation drive.
A poll by real estate services firm E-House China EJ.N released on Monday showed that prices of new homes in 288 major cities rose 8.1 percent in March from a year earlier, easing from February's annual rise of 9.1 percent.
Hong Kong property shares also posted gains, with the Hong Kong property sub-index climbing 3.1 percent in morning trading.
China Resources Land Ltd rose 4.6 percent, Sun Hung Kai Properties Ltd climbed 3.8 percent and Country Garden Holdings Co Ltd jumped 6.7 percent.
Overall, property gains were mitigated by declines in mainland bank and energy stocks, dragging the China Enterprises Index into negative territory as fund managers sought to lock in gains from the sectors.
Shares in Bank of China Ltd slid 1.45 percent, while the Bank of Communications Co Ltd and Industrial and Commercial Bank of China Ltd dropped 1.6 and 1.1 percent respectively, leaving the HSCE index of China shares in Hong Kong down 0.5 percent at lunch.
"Today we have seen profit taking pressure on Chinese Banking stocks, as previously those stocks benefited from the new policy of allowing them to issue preferred shares," said Ben Kwong, chief operating officer of regional brokerage KGI Asia. (Reporting By Natalie Thomas; Editing by Shri Navaratnam)