China blue chips at 2-year high as trade deal lifts sentiment

* Blue chips gain 1.4%, strongest since Feb 2018

* Trump to sign China deal on Jan. 15, start next stage talks

* PBOC to free up more funds for bank lending effective Jan. 6

HONG KONG, Jan 2 (Reuters) - Chinese shares rallied on the first trading day of the new decade on Thursday after U.S. President Donald Trump said he will seal a deal with Beijing mid-month and as the Chinese central bank ramped up policy support. ** The Shanghai Composite index was up 1.2% at 3,085.20 points - its highest level since last April. The blue-chip CSI300 index climbed 1.4% to its highest level since February 2018. ** CSI300’s financial sector sub-index rose 1.2%, the consumer staples sector fell 0.8%, the real estate index gained 0.9% and the healthcare sub-index was pretty much flat. ** The smaller Shenzhen index rose 1.9% to April 2019 highs, while the start-up board ChiNext Composite index was higher by 1.9%, hitting its highest level since May 2018. ** Trump said on Tuesday that Phase 1 of trade deal with China would be signed on Jan. 15 at the White House and that he would later travel to Beijing to begin talks on the next phase. ** Last week, Trump said he and Chinese President Xi Jinping would host a signing ceremony to seal the Phase 1 deal. ** China’s central bank said on Wednesday it was cutting the amount of cash that all banks must hold as reserves, effective Jan. 6, releasing around 800 billion yuan ($114.91 billion) in funds to shore up the slowing economy. ** The People’s Bank of China has now cut the reserve requirement ratio (RRR) eight times since early 2018 to free up more funds for banks to lend as economic growth slows to the weakest pace in nearly 30 years. ** “With the completion of U.S.-China interim agreement and the policy expectation of steadying growth, the market is in a phase of rising risk appetite,” analysts at Chuancai Securities wrote in a note on Thursday. ** China’s factory activity expanded at a slower pace in December but production growth was solid and business confidence shot up, a private survey showed on Thursday. ** The largest percentage gainers in the main Shanghai Composite index were Ningbo Shenglong Automotive Powertrain System Co Ltd , Zhongchang Big Data Corp Ltd and Hylink Digital Solution Co Ltd, all up by 10%. ** The Shanghai stock index is above its 50-day moving average and above its 200-day moving average. (Reporting by Noah Sin; Editing by Shailesh Kuber)