(Updates to midday)
HONG KONG, July 15 (Reuters) - Hong Kong shares advanced on Wednesday, building on the previous session's rally, spurred by strong earnings from two U.S. bellwethers, while shares in Air China soared after an upbeat profit forecast from China's flag carrier.
The Shanghai market held up well on hopes for a solid economic recovery, backed by China's fine-tuning of monetary policy .
However, analysts expect shares in both markets to be rangebound in the second half of 2009 after gaining sharply in the first six months.
"Markets usually lead earnings upgrades and downgrades, so even if there is a slight analyst upgrade after the interim earnings, it won't help the markets much," said Bratin Sanyal, head of Asian equity ING Investment Management Asia-Pacific.
"The impact of the fiscal stimulus in China will begin to fade, so we need to start seeing improvements in the G7 economies in the third and fourth quarters to act as a catalyst for the market," he said.
Investor sentiment in Pan-Asian markets improved 55 percent in the second quarter from the first, said ING after a survey of 1,300 affluent investors in the region, with China ranking second and Hong Kong coming in fifth.
HONG KONG
* The benchmark Hang Seng Index was up 1.59 percent or 285.25 points at 18,170.98 by midday, but turnover stayed low at HK$33.1 billion.
* The China Enterprises Index, which represents top locally listed mainland Chinese stocks, rose 1.74 percent or 185.8 points to 10,837.66.
* Air China jumped 6.1 percent to HK$4.20 after the airline said it expected a year-on-year profit gain of at least 50 percent for the first half of 2009 as fuel costs fell and the domestic air passenger market showed stable growth.
* China Cosco, the country's largest shipping conglomerate, rallied 5.8 percent, while bulk carrier China Shipping Development rose 5.2 percent, supported by strong gains in the main sea freight index.
The Baltic Dry Index, which measures changes in the cost of shipping commodities, jumped 4.1 percent on Tuesday, its first winning session this month, as concerns over a slow global economic recovery eased.
* Bourse operator Hong Kong Exchanges & Clearing was up 3.4 percent on media reports Shenzhen may allow Chinese investors to invest directly in Hong Kong-listed stocks through a depository receipt system.
The speculation comes almost two years after Beijing proposed allowing individual Chinese investors to directly trade in stocks listed in Hong Kong in a scheme dubbed the through-train. The proposed scheme was soon postponed amid worries about huge capital outflows and the beginnings of a speculative bubble in the Hong Kong market.
* China WindPower Group climbed 3.2 percent after it said it had entered into an agreement to be granted exclusive rights to develop wind power projects with a capacity of 1,500 megawatts in Baicheng, in the Jilin province.
SHANGHAI
* The Shanghai Composite Index ended the morning up 0.94 percent at 3,174.86 after reaching a 13-month intraday high.
* Gaining Shanghai A shares outnumbered losers by 564 to 352, while turnover for Shanghai A shares rose to 112.2 billion yuan ($16.4 billion) from Tuesday morning's 87.9 billion yuan.
* "The rally is holding up well, on hopes for a solid economic recovery and that monetary policy will not change suddenly," said Zhang Yanbing, an analyst at Zheshang Securities in Shanghai.
* The official China Securities Journal reported that investors should not be nervous about the recent fine-tuning of the Chinese central bank's monetary policy towards slightly higher money market rates, with the economic recovery reaching a stage requiring a tighter stance.
* Annual growth in China's broad M2 measure of money supply surged in June on the back of breakneck bank lending ordered by Beijing to pump up the world's third-largest economy.
* Market players are keeping an eye on the central bank's efforts to gradually tighten liquidity. On Wednesday it launched a special bill sale to soak up cash, the latest move to stem the surge in bank lending.
* Insurers posted solid gains. Ping An Insurance climbed 2.37 percent to 60.98 yuan, rising for a second straight session. The official China Securities Journal on Wednesday said insurance premiums in the first half of the year grew 6.4 percent on the year to 597.6 billion yuan ($87.47 billion).
* Shippers jumped, with China Cosco climbing 8.21 percent to 15.82 yuan after the Baltic Dry Index, which measures changes in commodity shipping costs, rebounded on Tuesday from a six-week low.
* Steel shares outperformed as on an upbeat demand outlook. Baosteel extended its gains this week, climbing 3.16 percent to 8.50 yuan. (Reporting by Parvathy Ullatil in HONG KONG and Claire Zhang in Shanghai; Editing by Eric Burroughs and Chris Lewis)