Hong Kong shares rose on Friday with gains pulling the benchmark index into positive territory for the week as investors looked past last quarter's growth slowdown in China and focused on higher bank lending and money supply on the mainland.

China's economy grew at its slowest pace in nearly three years in the first three months of 2012 with GDP expanding 8.1 percent, below the 8.3 percent consensus forecast of economists polled by Reuters.

That figure came a day after data showed that bank lending in China surged above 1 trillion yuan in March, with loans to small businesses a key driver - the first signs that credit conditions on the mainland are easing.

Banks led gains for Hong Kong stocks, pushing the Hang Seng up 1.8 percent on Friday and up 0.5 percent on the week. The China Enterprises index of top locally listed mainland firms rose 2.6 percent, its best single-day rise since Feb. 2.

The Shanghai Composite rose 0.4 percent on Friday, bringing its weekly gain to 2.3 percent. The index briefly slipped into the red after the GDP data was released but quickly recovered.

The local A-share market should have already largely factored in such an economic slowdown, said Alan Lam, greater China analyst at Julius Baer.

Lam said better liquidity in the mainland markets and steps such as the government stepping in to buy banking shares and increase quotas for qualified foreign institutional investors are likely to support Shanghai stocks.

In March, worries over slower growth in China, particularly its effect on corporate profitability, eroded gains this year for the Hong Kong and Shanghai markets as investors took money off the table.

That has pushed price-to-book valuations for the MSCI China , the most popular China index against which portfolio managers measure their performance, to 2008-09 lows, according to broker Credit Suisse.

The index is currently at around 1.65 times book value, according to the brokerage.

China shares have been cheap for a while now, without enticing investors, but Credit Suisse reckons there might be an end to downward revisions in earnings which could prove to be a catalyst to get investors to look at valuations.

Credit Suisse noted that official Chinese PMI (purchasing managers' index) data leads earnings-per-share revisions by three to six months and PMI bottomed out in November 2011.

RISING TURNOVER

Growth-sensitive sectors such as coal and other mining companies all posted gains on Friday although the biggest boost to the market came from banks.

China Construction Bank rose 2.5 percent and was the top boost for the Hang Seng. Larger rival ICBC rose 3.2 percent while Agricultural Bank of China rose 6 percent in 2-1/2 times its average 30-day volume.

A trader at a large U.S. bank said that the afternoon session saw good buying of banking shares from long-only funds as well as hedge funds, an early sign that investors were finally willing to buy into the low valuations as credit conditions showed signs of improving.

Smaller banks outperformed larger peers with Citic Bank up 6.1 percent and the second most heavily traded stock on the China Enterprises index behind Minsheng Bank which gained 1.1 percent.

In an encouraging sign for the market, turnover in Hong Kong increased each day this week, accompanying the Hang Seng's bounce on Wednesday off its 200-day moving average, currently at 20,018.07, now considered a strong support level.

A similar trend was seen in Shanghai where the benchmark closed above its 125-day moving average, currently at 2,366.67 while volumes hit their highest since March 20 and also rose each day this week.

Growth proxies were the other strong performers in Hong Kong, partly on short-covering.

Cement maker Anhui Conch, which traders said was one of the most shorted stocks in Hong Kong during the past 10 days, rose 1.5 percent. Data from the exchange shows over one-quarter of Thursday's turnover on the stock was sold short.

Heavy machinery maker Zoomlion rose 4.4 percent on Friday following the overnight gains in Caterpillar Inc, which closed up 4.6 percent in the United States.