* HK shares post biggest one-day gain in a month
* China shares rise 2 pct to 13-mth high, led by banks
* Dealers say thin volumes make market rally unsustainable (Updates to close)
By Sui-Lee Wee and Claire Zhang
HONG KONG, July 14 (Reuters) - Hong Kong shares surged 3.66 percent on Tuesday to their biggest one-day gain in a month, after an overnight rally on Wall Street spurred short-covering in financials.
Stocks in Shanghai jumped 2.1 percent to a 13-month closing high, with financial shares joining a global rally and Baosteel climbing after it secured a surprisingly big increase in steel prices.
Hong Kong's benchmark Hang Seng Index rebounded from a seven-week low, as investors flocked to beaten-down banks and financial issues, particularly after influential financial analyst Meredith Whitney's bullish outlook for bank earnings boosted U.S. stocks.
HSBC contributed the most to the rise of the index, advancing 4.4 percent to HK$64.25. Chinese lender China Construction Bank rose 3.3 percent to HK$5.61, Bank of China <3988.HK> rose 4.1 percent to HK$3.56, and ICBC was up 2.6 percent at HK$5.05.
Chinese insurer China Life climbed 3 percent to HK$30.55.
"We saw a nice bounce today," said Howard Gorges, vice-chairman with South China Brokerage. "It's very much news-driven from what happened on Wall Street. But there's still plenty of uncertainty. The bears keep calling the market down but it doesn't seem to want to go down. That is strange because there hasn't been much good news."
RALLY UNSUSTAINABLE?
The benchmark Hang Seng Index rose 631.10 points to 17,885.73. Turnover dropped to HK$51 billion, from HK$52.5 billion on Monday, indicating that some investors were cautious about the market's outlook.
"The market lacks direction and momentum," said Peter Lai, a director with DBS Vickers. "Investors are adopting a wait-and-see attitude and volumes remain weak. We could experience a correction in the third quarter."
Dealers are looking ahead to data on U.S. retail sales and corporate earnings later this week for indications of corporate health in the world's largest economy.
The China Enterprises Index, which represents top locally listed mainland Chinese stocks, rose 3.62 percent or 372.61 points to 10,651.86.
Tsingtao Brewery surged 6.7 percent to a 17-month high of HK$26.20 after the brewer said it expected first-half profit to increase 60-70 percent year on year.
Shimao Property rose 4.6 percent to HK$14.10 after it said its 64.21 percent-owned unit Shanghai Shimao would issue up to 150 million A shares, raising about 2 billion yuan ($292.7 million) to fund development projects in Qingdao, Jiangsu, Suzhou and Beijing.
Huadian Power International rose 5 percent to HK$2.51. The power company said it produced 50.07 million megawatt-hours of electricity in the first half of 2009, up 5.15 percent from a year earlier, as more power plants commenced operation.
SHANGHAI RESILIENT TO IPO RUSH
The Shanghai Composite Index ended up 64.601 points at 3,145.157, near its intraday peak and taking its advance since the start of the year to 73 percent.
Gaining Shanghai A shares outnumbered losers by 820 to 110, while turnover for Shanghai A shares edged up to 177.8 billion yuan ($26.0 billion) from Monday's 172.3 billion yuan.
"The index performed better than expected, and active turnover suggests liquidity is still ample at the moment," said Zhang Qi, an analyst at Haitong Securities in Shanghai.
Shanghai shares have rallied despite a pending flood of new share supply to the market via initial public offerings (IPOs). Analysts said the authorities could ramp up approvals for IPOs if they feel the market is being driven by too much speculative fervour.
Among the coming wave of IPOs, Sichuan Expressway Co <0107.HK> took institutional subscriptions on Tuesday for its listing and will take retail subscriptions on Wednesday. China State Construction Engineering Corp has launched what is expected to be the world's largest IPO so far this year.
Financial shares led gains, tracking a global rally. Ping An Insurance climbed 8.94 percent to 59.57 yuan after saying premium income rose 36 percent to 73 billion yuan in the first half from a year earlier.
Haitong Securities, a major Chinese brokerage, rose 2.87 percent to 17.94 yuan after saying net profit for the first half rose 22 percent from a year earlier to 2.5 billion yuan, helped by the stock market's hefty gains.
Baosteel climbed 3.52 percent to 8.24 yuan after sources said earlier this week that it would raise prices of its major steel products by 9 to 13 percent next month, more than expected.
Coal stocks outperformed, with Shanxi Guoyang New Energy up by its 10 percent daily limit at 38.61 yuan after forecasting net profit in the first half could rise 50 to 100 percent.
China Eastern Airlines and Shanghai Airlines jumped by their 5 percent daily limits for a second straight day after China Eastern said it would acquire its smaller rival in a share swap worth 9 billion yuan. (Editing by Eric Burroughs and Chris Lewis)