Hong Kong shares hit a six-month high on Wednesday and Shanghai's benchmark closed at its highest since Dec. 2 following a slew of Beijing policy moves ahead of Thursday's release of China January inflation data.
Outperforming the market, largely on a short squeeze, were Chinese resource-related names as well as shares of property developers and construction materials producers after the Chinese central bank said banks must provide loans to first-home buyers.
This was seen as the first clear call to support mortgage lending since the government launched a policy tightening cycle to calm the property market two years ago.
The Hang Seng Index ended up 1.5 percent at 21,018.5, a tad above the bottom of a 708-point gap that opened between Aug. 4 and 5 at 21,017.2. The China Enterprises Index rose 1.8 percent.
The Shanghai Composite Index closed up 2.4 percent at 2,347.5, above a 2,340 downward trend line, which could point to further gains.
Turnover in Shanghai was at its highest since Dec. 18, while in Hong Kong, the highest since Dec. 19 as investors chased outperformers in a bid to lock in gains after losses of about 20 percent on benchmark indices last year.
A Hong Kong-based trader said there was some mainland market chatter there could be a cut in bank reserve requirements as soon as Thursday after the release of January consumer price inflation data, which a Reuters poll suggests could come in unchanged from December, at 4.1 percent.
Chinese oil majors saw strong gains after Beijing announced late on Tuesday that retail prices of gasoline and diesel would rise 3-4 percent from Wednesday, a move that lifted prices to record highs and will help refineries improve margins for the country's leading oil producers.
Some Chinese oil stocks might look a bit overbought in the short term, but this is a strong fundamental change that will further drive investor interest, particularly for those in the sector that are trading at discounted valuations, said Alex Wong, director of asset management at Ample Finance.
China Petroleum & Chemical Corp (Sinopec) and CNOOC Ltd, each up about 2 percent, are trading at a 5 percent and 17 percent discount to their respective historical mean 12-month forward earnings, according to Thomson Reuters StarMine.
PetroChina, which is trading at 8.7 percent more than its historical mean 12-month forward earnings, gained 2.2 percent to close at its highest since April 21 last year.
In Shanghai, PetroChina and Sinopec were among the top boosts to the benchmark, each up 1.7 percent.
POLICY MOVES BOLSTER CHINA GROWTH-SENSITIVE NAMES
Chinese property developers and construction materials stocks saw exceptional strength largely on a short squeeze following the Chinese central bank's move on loans to first-home buyers, the first clear call to support mortgage lending since the government launched a policy tightening cycle to calm the property market two years ago.
The HSCI-Materials Index surged 4.9 percent, while the Shanghai materials sub-index was up 4.7 percent, standout outperformers among sector gauges.
Jiangxi Copper soared 6.2 percent in Hong Kong and a maximum 10 percent in Shanghai in volumes four times its 30-day average. China National Building Materials surged 8.7 percent in more than twice its 30-day average volume in Hong Kong.
China Overseas Land & Investment jumped 5.3 percent in Hong Kong, while Shanghai-listed Real Poly Estate and Shenzhen-listed China Vanke, the mainland's largest property developer by sales, each rose 2.9 percent.
Chinese banks were also broadly stronger with Beijing expected to follow January inflation data on Thursday with trade on Friday and numbers on loan growth and money supply next week.
The official China Securities Journal, citing unidentified sources, reported that the sector extended about 800 billion yuan ($126.89 billion) in new loans in January, including 320 billion yuan from the Big Four state lenders.
Another media outlet reported on Wednesday that Beijing was planning to roll out new rules on bank capital requirements on July 1 as part of efforts to implement Basel III guidelines to help lenders rein in risk.
Broker upgrades also partly accounted for strong gains by two Chinese consumer stock. GOME Electrical Appliances Holdings Ltd surged 11.6 percent in more than eight times its 30-day average volume after CCB International revised its target price to HK$2.50 from HK$1.90.
Traders cited a target-price revision by BNP Paribas revision for gains at Warren Buffett-backed Chinese automaker BYD Co Ltd. It surged 9.5 percent in more than triple its 30-day average volume after BNP upped its target price from HK$15.00 to HK$24.90.