* Air China gains; Cathay drops on brokerage rating change
* Shipping stocks rally as freight index advances
* Metal stocks surge as China stimulus seen supporting demand
* HK property stocks drop for third straight day (Updates to close)
By Parvathy Ullatil
HONG KONG, Feb 4 (Reuters) - Hong Kong shares rose 2.3 percent on Wednesday, their first gain in three days, as metal and shipping stocks surged on signs China’s investment-centered stimulus was helping soften the impact of the global recession.
But property stocks, which have been hammered down since Monday, continued to drift lower following dismal data showing the number of negative equity home loans rose threefold in the three months to December.
“There is a consensus that the Hong Kong economy is only going to get worse in this first quarter. All the indicators including unemployment and property prices seem to indicate that,” said Steven Leung, director with UOB Kay Hian.
“And unlike China there is very little the local government can do to support the economy,” he said.
Stocks in most sectors surged, joining similar rallies across the region, on hopes that U.S. lawmakers were closer to approving an economic stimulus plan.
Mainboard turnover rose slightly to HK$36.5 billion from Tuesday’s HK$35.3 billion.
The China Enterprises Index .HSCE rose 4.1 percent to 7,241.72.
Shares in Air China 0753.HK, the mainland's flag carrier, rose 8.6 percent to HK$2.14 after Deutsche Bank upgraded the stock to buy as it expects an improved performance from the airline in 2009-2010, helped by a rebound in passenger traffic, government support measures and lower jet fuel prices.
The investment house also said negative news related to fuel-hedging losses and poor passenger traffic in 2008 had been factored into the stock price.
Meanwhile, Cathay Pacific 0293.HK, which was cut to sell by Deutsche Bank, dropped 1.6 percent to HK$8.44.
Asia’s third-largest carrier is faced with rapidly declining traffic in the premium segment while its return on equity remains low despite falling fuel prices.
METALS, SHIPPERS SURGE
China's Angang Steel 0347.HK shot up 12.6 percent to HK$8.22 amid recovering demand and commodity prices, spurred by the government's 4 trillion yuan ($585 billion) plan, announced last November, to protect growth in its industries.
Smaller rival Maanshan Iron & Steel 0323.HK climbed 10.7 percent to HK$2.91.
Other metal stocks also recorded sharp gains with Aluminum Corp of China (Chalco) 2600.HK rallying 7.3 percent.
“The Chinese government has been alarmed by the economic data coming out in recent weeks and it will go even further to support growth in its economy,” said Castor Pang, strategist with Sun Hung Kai Financial.
Meanwhile, China’s official purchasing manager’s index (PMI) for January rose to 45.3 from 41.2 in December with new orders, including those for exports, and production rising strongly. [ID:nPEK15542]
“It has a lot of tools at its disposal in terms of monetary and fiscal measures,” he said.
An unbroken 11-day rally on the global freight index propped up shipping stocks in Hong Kong with China COSCO 1919.HK, the nation's biggest shipping conglomerate, gaining 14.4 percent at HK$5.31.
The Baltic Dry Index .BADI has gained by nearly a third in the last two weeks, helped by a rush of new orders for iron ore and steel from China ahead of the week-long Lunar New Year holiday.
(Reporting by Parvathy Ullatil; Editing by Jacqueline Wong) (email@example.com; +852 2843-6415))
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