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HK, China shares rise on GDP, bank projection
2011-07-18 09:15:47 Source: Reuters

HONG KONG, July 13 (Reuters) - Hong Kong and Shanghai shares staged a mild rebound on Wednesday after data showed China's economy grew faster than expected in the second quarter, while a strong earnings forecast from a large Chinese lender lifted the beleaguered banking sector.

China's economy grew 9.5 percent in the second quarter, countering worries that the country was headed for a sharp slowdown, although the numbers suggested the government will stay on course to tighten monetary policy.

"I very much doubt you will see comments on China hard landing and the possibilities of stagflation after today's data. Both are now highly unlikely," said Francis Cheung, head of China and Hong Kong strategy at CLSA.

The Hang Seng index rose 1.2 percent although turnover on the exchange came in about a fifth below Tuesday's levels, suggesting investors were not buying in a big way.

The benchmark is coming off its worst two-day decline in 17 months on the back of a sluggish banking sector, a worsening euro zone debt crisis and a Moody's report that reignited fears about Chinese corporate governance.

The Chinese banking sector got a shot in the arm after the country's No.3 lender, Agricultural Bank of China , led a bounce in banks after forecasting first-half net profit would rise by more than 45 percent.

AgBank closed 3.9 percent higher and pulled up shares of larger rivals China Construction Bank and Industrial & Commercial Bank of China , both of which gained 2.2 percent.

Chinese banking shares have come under pressure as uncertainties around local government debts kept investors at bay, despite valuations at or near troughs seen during the depths of the financial crisis in 2008.

CCB and ICBC shares now trade at 6.7 times and 7.3 times forward-12 month earnings multiples, according to Thomson Reuters Starmine, lower than levels seen in the post-Lehman aftermath.

"There are value plays, and there are value traps. Chinese banks are not exactly value traps now, but they are on that end of the range," said CLSA's Cheung. But he added that China's government had the means to deal with the debts issue should it worsen.

In a further move to improve risk management in the financial sector, Chinese authorities were preparing to conduct the first-ever stress test on the brokerage industry, sources told Reuters.

SHANGHAI RECOVERS

Financials also rallied on mainland markets, helping the Shanghai Composite close up 1.5 percent after posting its biggest single-day drop in seven weeks on Tuesday.

"The move yesterday was a little exaggerated. The rebound this morning compensates for that, but it also shows investors remain jumpy," said Zhang Qi, an analyst with Haitong Securities in Shanghai.

Beyond financials, gold mining companies attracted heavy buying interest on Wednesday as prices of the precious metal hovered near record highs.

Zijin Mining rose 4.2 percent while Zhongjin Gold closed up 4 percent and were among the most actively traded counters in Shanghai.

Gold prices have gained 5 percent over the past seven days as growing fears of a euro zone debt contagion drove investors to safe haven assets.

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