October 9, 2017 / 5:03 AM / 10 months ago

China stocks hit 21-month high after holiday break; Hong Kong dips

* SSEC +1.2 pct, CSI300 +1.9 pct, HSI -0.3 pct

* China banks, property stocks jump on coming reserve ratio cut

* Confidence not dented by disappointing service sector survey

SHANGHAI, Oct 9 (Reuters) - China stocks hit 21-month highs on Monday morning following a week-long holiday, boosted by a coming cut in banks’ reserve requirement ratio and last week’s stellar performance in global equity markets.

Investors’ pent-up euphoria was only slightly affected by a disappointing private survey on China’s service sector in September. Helping lift optimism was data that average daily sales of retailers increased 10.3 percent during the eight-day National Day holiday.

Also aiding China shares was catch-up with global markets, which surged while Chinese markets were shut.

But Hong Kong stocks dipped after hitting near 10-year highs last week, as investors took profit in property and financial shares ahead of Chief Executive Carrie Lam’s first policy address on Wednesday.

The blue-chip CSI300 index rose 1.9 percent, to 3,907.53 points at the end of the morning and the Shanghai Composite Index gained 1.2 percent, to 3,390.51 points.

China’s banking and real estate stocks led the gains as investors responded to the People’s Bank of China’s Sept. 30 announcement that it would cut the reserve requirement ratio (RRR) for some banks that meet certain requirements for lending to small business and the agricultural sectors.

The banking index rose 2.1 percent on expectations the cut will support banks’ net interest margins and profit growth in 2018. The property index climbed 2.6 percent.

The PBOC said the targeted RRR cut, to take effect next year, does not change the general direction of its prudent monetary policy.

Most analysts agreed it does not represent a policy loosening, but investors still expect the additional liquidity will be good news for stocks and possibly other assets such as real estate.

Analysts’ estimates of the additional liquidity from the cut from 300 billion yuan to 800 billion yuan ($45 billion-$120 billion), depending on whether banks ramp up lending to targeted firms to qualify for larger reductions.

Investors largely ignored a private survey showing business activity in China’s services sector grew at its slowest pace in 21 months in September as the pace of new business cooled.

The consumer sector rose sharply, up nearly 3 percent.


The Hang Seng index dropped 0.3 percent, to 28,372.55 points, while the Hong Kong China Enterprises Index lost 0.2 percent, to 11,438.53.

The market is under pressure from profit-taking, as well as renewed concerns over North Korea’s nuclear ambitions as gold prices climbed to their highest in more than a week.

($1 = 6.6262 Chinese yuan)

Reporting by Samuel Shen and John Ruwitch; Editing by Richard Borsuk

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