Hong Kong shares produced their best day in a month on Friday, as investors covered short positions after the European Central Bank raised hopes it would tackle escalating borrowing costs in euro zone member states.

The Hang Seng Index rose 2 percent to 19,275. For the week, though, the benchmark shed 1.9 percent.

Friday's close was above chart resistance at 19,259.4, the high on July 23 and the bottom of a gap with the July 20 low at 19,511.9 at the top end.

Mainland Chinese markets crawled higher on Friday, after strength in the banking sector outweighed weakness among pharmaceuticals. Relatively closed to external capital, they underperformed Asian markets on the day.

The CSI300 Index of the top Shanghai and Shenzhen listings rose 0.1 percent on the day, but ended down 2.1 percent for the week. The Shanghai Composite Index was up 0.1 percent on the day, but shed 1.8 percent this week -- its sixth straight weekly loss.

For Hong Kong, Friday's gain might not be sustained next week. Waiting to see what action the ECB takes, to follow remark by its chief Mario Draghi, will be one key factor, and another will be earnings reports.

Also, volumes did not increase substantially in Hong Kong and Shanghai, another indication gains could be short lived. In Shanghai, it was 16 percent below its 20-day average.

Corporate reporting season kicks off in earnest with HSBC Holdings Plc due on Monday and Hutchison Whampoa 0013.HK due next Thursday, among a slew of others.

"Earnings from next week are likely to disappoint," said Alan Lam, Julius Baer's Greater China equity analyst. "For Chinese banks, there will be trading opportunities like today, but for the medium to long term, profitability will definitely decline."

On Friday, HSBC Holdings was the top boost to the Hong Kong benchmark, rising 2.6 percent. Short selling interest in shares of Europe's largest bank averaged 39 percent in the first four days this week, hitting a high of 48.6 percent on Tuesday.

HSBC is expected to post first-half earnings on Monday. It has slumped 6.4 percent in July, but is still up 8.7 percent for the year. According to Thomson Reuters StarMine, the stock is trading at 7.8 times forward 12-month earnings, a 42 percent discount to its historical median.

In addition to worries about its exposure to Europe, the bank has come under selling pressure after it was reportedly among a number that U.S. prosecutors and European regulators are investigating for allegedly colluding to manipulate global benchmark interest rates.

Shares of AIA Group Ltd slipped 0.2 percent after starting Friday trade up 2.6 percent. Asia's third-largest insurer posted a bigger-than-expected increase in the value of new businesses in the first half.

"AIA's new business growth was particularly impressive, especially given the bad business environment," said Lam of Julius Baer.

"But there are still two key overhang over their share price: a possible AIG sell-off of its AIA stake and AIA's prospective purchase of ING's Asian business," Lam said.

AIA's 0.2 percent decline on Friday barely dented its strong outperformance this year to date. It is up more than 10 percent, compared to the 4.6 percent gain on the Hang Seng Index.

For the year, the CSI300 Index is now up 0.1 percent, while the Shanghai Composite is down 3.2 percent -- both outperforming offshore Chinese markets. The China Enterprises Index is down 5.4 percent.

CHINESE BANKS RISE

The beleaguered Chinese banking sector rose on Friday after the Shanghai Securities News reported that Chinese banks may have until 2018 to meet new capital-adequacy rules that currently are scheduled to take effect next year.

The China Banking Regulatory Commission may let lenders meet the requirement gradually, according to the newspaper.

Industrial and Commercial Bank of China rose 1.4 percent in Shanghai and 2.7 percent in Hong Kong. Bank of China rose 1.1 percent in Shanghai and 2.1 percent in Hong Kong.

Although the banks are trading at historically low valuations, investors have shunned the sector because of bad debt concerns. Beijing's recent rate cuts also involved trims to the sector's lending and deposit rates that are expected to squeeze interest rate margins and hurt profitability.

The slowing Chinese economy is also a dominant concern, but in another sign that the world's second-largest economy could be stablizing, China's National Bureau of Statistic said on Friday the country's industrial profits fell 1.7 percent in June from a year earlier, easing from May's 5.3 percent decline.

Banking gains were undercut by weakness in the pharmaceutical sector after state-run China Securities Journal reported on Friday that the National Development and Reform Commission may soon announce another round of price cuts of more than 20 percent on some medicine.

Jiangsu Hengrui Medicine Co Ltd shed 4.3 percent, while Yunnan Baiyao group lost 2.9 percent.