HK stocks set to gain on easing credit-market woes

HONG KONG, July 17 (Reuters) - Hong Kong stocks are expected to rise on Thursday after surprisingly strong earnings from a big U.S. bank and a drop in oil prices eased worries over the impact of credit losses and soaring fuel costs on company profits.

Financial shares are likely to track strong gains in overseas banking stocks after Wells Fargo (WFC.N: Quote, Profile, Research, Stock Buzz), the No. 5 U.S. bank and a big mortgage lender, reported earnings that beat analyst estimates.

But a report by CLSA saying Bank of China (3988.HK: Quote, Profile, Research, Stock Buzz) (601988.SS: Quote, Profile, Research, Stock Buzz) may hold roughly $20 billion worth of bonds issued by troubled U.S. mortgage lenders Fannie Mae (FNM.N: Quote, Profile, Research, Stock Buzz) and Freddie Mac (FRE.N: Quote, Profile, Research, Stock Buzz) could cap gains. [ID:nHKG96256]

"It's time to bargain hunt since the stocks have been seriously oversold and are now very cheap to buy," said Francis Lun, general manager from Fulbright Securities.

"The weakest links like banks, refiners and airlines can have a good chance to rebound after the recent sell-off," Lun said, adding the index could shoot up some 500 points before meeting resistance.

Hong Kong shares eked out a small gain and closed up 0.23 percent at 21,223.50 on Wednesday after opening below the key 21,000 support level for the first time since August 2007.

STOCKS TO WATCH

* Air China (0753.HK: Quote, Profile, Research, Stock Buzz) has is eyeing the possible sale of a stake in loss-making carrier Austrian Airlines (AUAV.VI: Quote, Profile, Research, Stock Buzz) by the Austrian government, an Austrian magazine quoted the Chinese airline's acting Chairman Kong Dong as saying. [ID:nL16674595]

* China Life Insurance Co (2628.HK: Quote, Profile, Research, Stock Buzz) said on Wednesday its unaudited accumulated premiums income for the first six months of 2008 amounted to 182.1 billion yuan. For statement please see here