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HK shares rally 3.1%, driven by liquidity

HONG Kong shares rallied 3.1 percent to close at a 7-1/2 month high, in its third straight day of gains yesterday as signs of an early turnaround in the global economy lured investors in droves.

Shares in HSBC shot up 6.3 percent to finish at four-month closing high of HK$68.35 (US$8.82), partly helped by news that the Britain-based lender and Hong Kong's Bank of East Asia are set to become the first domestically-incorporated overseas banks to issue yuan bonds in Hong Kong.

Bank of East Asia rose 5.6 percent to HK$24.55, while another London-based lender Standard Chartered gained 7.4 percent.

The benchmark Hang Seng Index ended up 3.1 percent, or 521.12 points, at 17,544.03, its highest closing level since October 2008.

"This rally is entirely liquidity-driven. Technically, the index closed above its 250-day moving average, which is a good sign, but fundamentally it is pretty overvalued," said Peter Pak, vice-president at BOCI Research.

The gauge surged nearly 55 percent from the 2009 low it plumbed in March.

Turnover rose to HK$83.7 billion from Monday's HK$66.4 billion. Surging volumes sent shares in bourse operator Hong Kong Exchanges & Clearing up 3.3 percent.

"With macro data finally stabilizing, liquidity flows into risk assets have increased steadily in the past few weeks, giving equity markets a boost," said Andrew Orchard, an analyst with RBS, in a note yesterday. "We are still not convinced of a longer-term recovery, although we think this rally can continue for several months."

Other market watchers agreed that the more than two-month rally in Hong Kong, fuelled by increased confidence in a quick turnaround in the Chinese economy, was likely to be interrupted only in event of an external shock, potentially from the United States.

The China Enterprises Index of top mainland companies gained 2.9 percent at 10,072.51 as the Shanghai Composite Index scaled a 9-1/2 month high.

Energy stocks soared after crude prices rose above US$60 per barrel as violence in top African crude exporter Nigeria and a fire at a key US East Coast refinery revived supply concerns.

Asia's largest oil and gas producer PetroChina advanced 5 percent, while offshore oil specialist CNOOC added 5.4 percent. Aluminum Corp of China rose 7.6 percent.


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