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China shares rise for 4th day; HSBC limits losses in HK

Published 08/04/2009, 04:51 AM
Updated 08/04/2009, 04:54 AM

* HSBC jumps; StanChart drops on share sale plan

* China banks drop as fears of monetary tightening persist

* Coal stocks support day four of gains in Shanghai (Updates to close)

By Parvathy Ullatil and Claire Zhang

HONG KONG, Aug 4 (Reuters) - Hong Kong shares ended a three-day rally slightly lower on Tuesday as strong gains from HSBC following its first-half earnings were outweighed by losses in Chinese bank stocks hounded by the spectre of monetary tightening.

Financial stocks also weighed on the Shanghai index, which closed up 0.3 percent at a 14-month closing high, led by coal shares as oil prices remained high.

China's four big state banks extended about 165 billion yuan ($24.16 billion) in new loans in July, marking a sharp fall from previous months, banking sources told Reuters.

China's banking regulator, concerned that record lending could lead to a spike in bad loans, may tighten bank capital rules by excluding the subordinated bonds they sell to other banks from their capital base, sources familiar with the situation said on Monday.

Analysts said monetary policymakers faced a dilemma, having committed to maintain an "appropriately" loose monetary policy because of uncertain elements in economic recovery, while confronting risks from asset price bubbles as a result of surging bank lending and renewed capital inflows into China.

"The situation is complex. The central bank's monetary policy seems difficult to work out, so the China Banking Regulatory Commission has to take timely measures," said Zhao Qinming of China Construction Bank's research department.

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HSBC JUMPS, STANCHART DROPS IN HONG KONG

The benchmark Hang Seng Index finished down 10.83 points at 20,796.43 after opening at a 12-month high of 21,196.75, while turnover jumped to HK$95.8 billion from Monday's HK$77.9 billion.

"The market has literally exploded since March, and earnings season gives major funds that have stayed invested since the beginning of the year a chance to exit," said Alex Tang, head of research with Core-Pacific Yamaichi International.

Tang said unless there was a substantial increase in turnover, 21,000-22,000 points would remain major resistance for the index for the rest of the year.

The China Enterprises Index, which represents top locally listed mainland Chinese stocks, dropped 1.2 percent to 12,218.67 led by a 3.2 percent slide in top lender ICBC.

HSBC Holdings Plc jumped 7 percent to finish at ten-month high of HK$83.10 after its first-half earnings came in well ahead of estimates from some top analysts.

The index heavyweight's better-than-expected earnings were met with upgrades from brokerages, including Bank of America-Merrill Lynch and JP Morgan, while JP Morgan and Goldman Sachs raised their target price on the stock to HK$100.

The blue-chip stock, which scaled a 10-month high of HK$84 earlier, has nearly tripled in value since it scraped bottom at HK$30.559 following its massive cash call in March 2009.

But Hang Seng Bank, which is 62 percent owned by HSBC, dropped 3.8 percent after posting a 29 percent fall in first-half net profit and warning that its net interest margin would continue to come under pressure in the second half.

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Another UK-based lender, Standard Chartered, dropped 2.3 percent as its forecast-beating earnings' growth was overshadowed by a surprise $1.6 billion fundraising plan.

Macau's largest casino operator by market share, SJM Holdings <0880.HK>, dropped 4.6 percent on a report its chairman Stanley Ho had suffered a head injury after falling at his home last week. Hong Kong's Apple Daily reported that Ho was in stable condition following brain surgery at a local hospital.

SHANGHAI CLIMBS FOR 4th DAY

The Shanghai Composite Index ended up 8.852 points at 3,471.442, climbing for a fourth session in a row.

Gaining Shanghai A shares outnumbered losers by 498 to 433, while turnover for Shanghai A shares rose to 250.4 billion yuan ($36.7 billion) from Monday's 235.8 billion yuan.

China Shenhua Energy advanced 6.3 percent to 41.19 yuan, but Bank of China fell 1.9 percent to 4.59 yuan. Hua Xia Bank sagged 3.03 percent to 12.82 yuan.

"Financial shares were soft for a second day as new lending in July may slide sharply," said Nanjing Securities analyst Wen Lijun. She added that the brisk pace of lending could not continue into the second half of the year.

But analysts still hold a positive view of the banking sector given the outlook for improved earnings, while sentiment in the overall market remains upbeat.

"The uptrend could be sustained, with liquidity still buoying the index," said Zheshang Securities analyst Zhang Yanbing.

Property shares were mixed, with China Vanke, the country's biggest listed property developer, rising 0.53 percent to 13.31 yuan after saying that it expected to see a greater supply of new homes later in the year in a robust market, and that it would raise its 2009 target for housing starts.

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Shanghai Airlines sank 2.40 percent to 6.51 yuan after saying it expected a net loss for the first half of 2009, after reporting net losses for two straight years. (Editing by Edmund Klamann and Chris Lewis)

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