January 11, 2011 / 9:00 AM / 9 years ago

Hong Kong, Shanghai shares rise; energy counters advance

* Hang Seng rises 1 percent; Shanghai up 0.4 percent

* Energy counters rise as oil recovers from last week’s dip

* Hutchison up 4.5 pct; traders cite Watson spin-off rumours

* Property up despite tax news; impact limited, analysts say

(Updates to close)

By Vikram S.Subhedar and Chen Yixin

HONG KONG/SHANGHAI, Jan 11 (Reuters) - Shares in China and Hong Kong rose on Tuesday as North Asian markets outperformed the region, with optimism over strong economic growth and corporate earnings offsetting investors’ concern over Europe’s festering debt crisis.

Energy shares also supported markets as oil prices continued to recover from a drop of more than 3 percent dip last week.

Shanghai’s key stock index ended 0.4 percent higher at 2,804 points, bouncing off an intra-day low at its 200-day moving average.

Hong Kong’s benchmark Hang Seng Index reversed two days of declines and rose 1 percent to 23,760 points, closing in on a short-term resistance at its October high of 23,840.3.

“People are expecting good earnings and there is a sense that the global economy is recovering well. Those are underlying strengths in this market,” said Larry Jiang, chief investment strategist at Guotai Junan Securities in Hong Kong.

Jiang also said hopes for a pick-up in merger activity were boosting sentiment.

Hutchison Whampoa rose 4.5 percent to its highest level in more than three years and provided the biggest boost to the broader market as investors piled into its shares amid speculation that it might spin off its health and beauty chain, Watsons.

Shares of Li Ka-shing-controlled Hutchison have risen nearly 71 percent since Aug 5, breaking through a year-long trading range after the company announced investments in its 3G business.

But Julian Ba, an analyst at Macquarie Securities who has a “neutral” rating on the stock, warned that bullish sentiment on the company’s turnaround may be growing excessive.

The stock is trading well into technically overbought territory and the latest gains haveg come on relatively low volume, suggesting a near-term pull back could be on its way.

Meanwhile, a steady recovery in crude oil prices benefitted shares of majors Petrochina and CNOOC , which gained 1.8 percent and 2.3 percent, respectively.

Oil held above $89 a barrel as a major North American pipeline that carries flows equivalent to 12 percent U.S. crude output remained shut. [ID:nL3E7CB0A4]

SHANGHAI WEAK ON SMALL CAPS

China’s key stock index reversed early losses as investors snapped up property shares, despite a report that Shanghai was likely to impose a property tax.

The benchmark Shanghai Composite Index slid 0.4 percent on Monday when the property sector underperformed after local media reported Chongqing may launch a property tax in the first quarter. [ID:nTOE70900D]

The index slipped below its 250-day moving average on Monday, but still remains above the 125-day moving average, a level which is expected to provide support in the near term. Analysts widely expect the index to move in a narrow range around 2,750-2,800 points in the near term.

The property index rose 2.9 percent despite a report that Shanghai, the most populous city in China, would likely impose a property tax on second-home buyers in the first quarter of this year. [ID:nTOE70A025]

“When the policies that were announced were less severe than market had previously expected, the negative news became positive,” said Wang Aochao, an senior analyst at UOB Kay Hian.

Property firm Gemdale Co , the most active stock on the Shanghai market, rose 7.8 percent, while China Vanke , the most active share on the Shenzhen market, was up 3.3 percent.

Investors continued to sell off small cap firms, with a key sub index falling 0.5 percent.

Beijing Sifang Automation , the biggest loser on the Shanghai market, plunged by its 10 percent daily limit, while Zhejiang Founder Motor Co marked the biggest fall on the Shenzhen market, also dropping by its 10 percent daily limit.

(Editing by Kim Coghill)

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