Hong Kong shares rose for a fourth day on Tuesday, extending gains to 1.8 percent for the month, as heavyweights such as HSBC advanced ahead of central bank meetings that market players hope will yield further stimulus measures.
Month-end flows lifted trading volumes in Hong Kong but traders said investors were reluctant to build fresh positions ahead of Chinese manufacturing data on Wednesday and U.S. Federal Reserve and European Central Bank meetings this week.
The Hang Seng index rose nearly 1.1 percent or 211.4 points to 19,796.8, closing above its 200-day moving average that has proved a stiff resistance level for the index over the past two months.
The Hong Kong benchmark has now clawed back about half of the losses it suffered when it slumped nearly 12 percent in May on fears about the euro zone's debt crisis and slowing growth in China. It is up 7.3 percent so far this year.
Worries about China's slowdown ensured mainland markets continue to underperform ,with the large-cap focused CSI300 index of top listed companies in Shanghai and Shenzen down 0.1 percent and the Shanghai Composite off 0.3 percent on Tuesday.
Both indices fell more than 5 percent in July, bringing their losses to more than 11 percent since the beginning of June despite two interest rate cuts and incremental steps from Beijing to boost investor confidence. The Shanghai Composite has plumbed 40-month lows in recent sessions.
"You're seeing China implementing some steps toward stimulating the economy and at these valuations there's limited downside," said Tom Kaan, a director at Louis Capital Markets in Hong Kong.
"At the moment, the market seems to have lost its conviction that China will once again become a driver of global growth, and more importantly global demand," said Kaan.
Trading has been choppy in Hong Kong all month with low valuations attracting some bargain hunters, while a stream of profit warnings from Chinese companies also prompted heavy short-selling.
The Hang Seng is trading at 9.5 times forward 12-month price-to-earnings, according to Thomson Reuters I/B/E/S, a 23 percent discount to its average multiple over the past decade.
Over the past month earnings forecasts for the Hang Seng's constituents have been cut by an average 1.8 percent, the sharpest downward monthly revision since March 2009.
HSBC, INFRASTRUCTURE RISE
Shares of HSBC Holdings rose 0.6 percent, providing the biggest boost to the index followed by the 3.4 percent rise in China Construction Bank.
HSBC, Europe's largest lender, reported first-half results largely in line with expectations after the close on Monday, but said it would set aside $2 billion as provisions for ongoing investigations related to money laundering in the U.S. and mis-selling in the U.K.
Railway stocks bounced in Shanghai following a plan to boost private sector investments, with China Railway Construction and China Railway both up nearly 3 percent.
Among large-caps in Shanghai, financials outperformed, with ICBC up 1.1 percent and smaller rival Agricultural Bank of China rising 1.2 percent.
Shares of Chinese steel producers climbed for a second day on hopes of more government support for the beleaguered sector.
Gains for steelmakers came after the China Iron and Steel Association appealed to the government to restore a value-added tax rebate on some high-end steel products to bolster the sector hit by slumping profits and over-capacity.
Angang Steel shares rose 4 percent ,while smaller rival Maanshan Iron rose 5.3 percent on healthy volumes.