SHANGHAI (Reuters) - Shares in China and Hong Kong rose on Friday and looked set for solid gains on the week as tepid inflation data reinforced expectations of more policy easing.
China's annual consumer inflation rate (CPI) stayed flat at 1.4 percent, data showed early in the day, while producer prices (PPI) contracted 4.6 percent, highlighting the pressures facing Chinese companies as the economy slows.
ANZ said in a research note that "the soft inflation data in March means the central bank needs to further loosen monetary policies."
ANZ expects another 25 basis point interest rate cut in the second quarter, and an additional 100 basis point cut in banks' required reserve ratios by the end of the third quarter.
The CSI300 index (CSI300) rose 1.2 percent at the end of the morning session, while the Shanghai Composite Index (SSEC) gained 1.4 percent. For the week, they looked set for gains of 3.4 percent and 3.9 percent, respectively.
The Hang Seng index (HSI) added 0.4 percent, to 27,047.32 points, on track to end the week up over 7 percent, its biggest weekly gain in three years. The Hong Kong China Enterprises Index (HSCE) gained 0.6 percent, and was set to advance 9 percent on the week as mainland investors piled into the market in search of China-related shares with cheaper valuations.
"I want to say we should all take a deep breath after these record setting days and remember we're on a long road," Charles Li, chief executive of the Hong Kong Exchanges and Clearing Ltd (HKEx) (HK:0388) said in a blog post on the exchange's website.
"Staying calm and exercising caution in a more active market will be a challenge to each investor in Hong Kong."
On Friday morning, mainland investors used about 4 billion yuan ($644.29 million) buying Hong Kong shares under the Shanghai-Hong Kong Stock Connect scheme, or about 40 percent of the daily quota. The quotas were exhausted on Wednesday and Thursday.
The rally in Hong Kong is spilling over into China's B-share market, a long neglected corner of China's stock market.
The Shanghai's dollar-denominated B-share index <.SSEB> jumped 9 percent on Friday to a seven-year high and its largest one-day rally since 2009, with every single component of the index rising by 10 percent, the maximum daily limit.
The Hong Kong dollar-denominated B-shares in Shenzhen (SZSB) surged over 6 percent.
"Investors were starting to realize that B shares, like Hong Kong stocks, are also much cheaper" than Chinese stocks, said Wu Kan, head of equities trading at Shanghai-based investment firm Shanshan Finance.
($1 = 6.2084 Chinese yuan)