(Reuters) - Hong Kong stocks rose for a third-straight day on Wednesday as resource shares climbed, shrugging off losses in Shanghai, which shied away from a critical resistance level as investors braced for Chinese inflation data.
Chinese resource stocks such as Angang Steel helped boost the Hang Seng Index by 0.8 percent and curbed losses in the Shanghai Composite Index, which ended 0.4 percent lower.
Resource shares were bouyed by stronger prices for industrial and precious metals, with gold hitting a four-week high on worries about the euro zone's festering debt crisis.
You need more clarity to take on more risk, but that's still not immediately clear. People are betting on aggressive policy-easing, particularly in (China), but conditions are still not bad enough to warrant that, Beijing-based CICC global equity strategist Hong Hao told Reuters.
Hong said a better entry point could emerge later in the first quarter.
I doubt many long-only funds have done much fresh buying in Hong Kong beyond some sector rotation, particularly into some Chinese banks, where valuations are rather cheap.
On Wednesday, the China Enterprises Index of the top mainland listings in Hong Kong rose 1 percent, helping the broader Hang Seng Index finish at 19,151.9 points, with turnover marginally lower than Tuesday.
The Shanghai Composite Index closed at 2,276.1, retreating from the critical 2,300 level that provided support on at least three occasions since July 2010 until it was broken in mid-December.
A move beyond 2,330 could suggest further gains in the near term, particularly with Beijing due to release December inflation data on Thursday that could help determine the shape and pace of further policy easing in 2012.
Economists polled by Reuters expect annual inflation eased to 4 percent in December from 4.2 percent in November, but such a level may still be too elevated for policymakers' liking.
Among the more active stocks, China Chemical & Petroleum Corp (Sinopec) lost 0.6 percent, while China Shenhua Energy Co Ltd shed 0.7 percent. Key drivers of a three-day rally that stalled on Wednesday, they were among the top drags on the Shanghai Composite.
Their state-owned parents announced on Tuesday they had increased their A-share holdings, a move that was preceded by China's once-in-five-years National Financial Working Conference (NFWC) held over the weekend.
A similar announcement by Angang Steel Co Ltd spurred strong gains for the broader Chinese steel sector.
Angang gained 4.4 percent in Hong Kong and 0.9 percent in Shenzhen. So far this week, it has gained 7.5 percent in Shenzhen and 10.3 percent in Hong Kong.
On Wednesday, mainland media reported that China's securities regulator had set up a protection bureau, under its purview, aimed at protecting investor interests, improving education and streamlining the complaints process.
In a note to clients, GaveKal Dragonomics said the result of reforms by new and more activist leadership could be a substantial and permanent re-rating of Chinese stocks over the next six months.
CHINA PLAYS LEAD HONG KONG HIGHER
In Hong Kong, China-sensitive stocks formed nine out of the top 10 boosts on the Hang Seng Index, with Chinese internet giant Tencent Holdings Ltd topping that list, up 3.7 percent.
PetroChina Co Ltd and CNOOC Ltd firmed, while China Shenhua Energy Co Ltd shed 1.3 percent after gaining almost 6 percent in the two previous sessions.
Geely Automobile Holdings Ltd, which bought Swedish rival Volvo in 2010, jumped 6.4 percent in nearly seven times its 30-day average volume at midday.
Traders cited speculation that the automaker could be the partner that Fiat SpA and Chrysler Group LLC are reportedly seeking to help cut production costs.
Chinese banks mostly gained, but despite their recent strength short-selling in Chinese banks has remained high, suggesting investors are still pessimistic about the sector.
This was particularly for China Construction Bank Corp (CCB) and Agricultural Bank of China Ltd (AGBank) among the Big Four.
CCB saw short-selling interest as a percentage of total turnover spike to 14 percent on Monday and 29 percent on Tuesday, despite gains of more than 3 percent over those two sessions. Short-selling in AgBank averaged more than 25 percent.