* Shanghai shares up 1.4%, blue chips up 1.2%
* Premier backs innovation with lower VAT; industrial profits undershoot
* Regional banks’ shares fall, financing costs rise after Baoshang’s rescue
HONG KONG, May 27 (Reuters) - The Chinese stock market climbed on Monday, rebounding from its three-month lows, as investors expected greater policy support to offset impact from U.S. tariffs and cooling domestic demand.
** At the close, the Shanghai Composite index was up 1.4% at 2,892.38, while the blue-chip CSI300 index gained 1.2%. Both indexes bounced from their lowest since January 22, hit earlier in the session. ** CSI300’s sub-indexes for the financial sector, the consumer staples sector, and healthcare shares were all higher by almost 1%, while real estate stocks climbed 0.9%. ** The smaller Shenzhen index ended up 2.5% and the start-up board ChiNext Composite index was higher by 3.3%. ** Data on Monday showed profits for China’s industrial firms dropping in April on slowing demand and manufacturing activity, suggesting the previous month’s rebound may have been a one-off and added pressure for policymakers to step up support for a cooling economy. ** Premier Li Keqiang said on Friday China aimed to keep value-added taxes for the manufacturing industry at low levels and encourage companies to innovate, a move that Li said will ultimately help create jobs and maintain sustainable economic growth. ** China’s financial regulators said on Friday the country’s banking and insurance regulator will take control of Inner Mongolia-based Baoshang Bank due to the serious credit risks it poses, in a rare takeover of a domestic lender. Regional banks’ shares fell and their funding costs rose on Monday. ** Policymakers will unlikely let the Shanghai Composite slip below the key level of 2,800, as such a fall could trigger credit risks from pledged-share financing, Citic Securities’ analysts wrote in a note on Monday. ** FTSE Russell is forging ahead with plans to add Chinese A shares to its widely-tracked global benchmarks next month despite the trade war. The move will bring at least $10 billion of capital inflows to the local market, analysts at Chuancai Securities wrote in a note on Monday. ** MSCI will implement an increase of A-shares’ weighting of its indexes after markets close on Tuesday. ** Around the region, MSCI’s Asia ex-Japan stock index was firmer by 0.1%, while Japan’s Nikkei index closed up 0.3%. ** The largest percentage gainers on the main Shanghai Composite index were Shanghai Hongda Mining Co Ltd and Wuxi Taiji Industry Co Ltd, up 10.1%, followed by Sanan Optoelectronics Co Ltd, up by 10%. ** So far this year, the Shanghai stock index is up almost 16% and the CSI300 has risen 20.8%. But, for this month, Shanghai stocks have declined 6%. ** About 19.67 billion shares were traded on the Shanghai exchange. The volume in the previous trading session was 16.72 billion. ** As of 07:21 GMT, China’s A-shares were trading at a premium of 26.69% over the Hong Kong-listed H-shares. ** The Shanghai stock index is below its 50-day moving average and above its 200-day moving average. (Reporting by Noah Sin; editing by Uttaresh.V)