Hong Kong shares snapped a four-day losing streak on Thursday, as strength in consumer stocks outweighed downward pressure from aggravated fears of a slowdown in China.
Initial gains in Chinese financial stocks were cut and losses in resource stocks accelerated after the announcement that the HSBC flash PMI, the earliest indicator of China's industrial activity, fell to 48.1 in March from February's four-month high of 49.6.
The Shanghai Composite Index and the China Enterprises Index of the top mainland listings in Hong Kong both slipped 0.1 percent, with the latter suffering its seventh loss, the longest losing streak since last June.
The Hang Seng Index rose 0.2 percent. All three benchmark indices finished off the day's lows. Turnover in Hong Kong sunk to a two-month low and was a two-week low in Shanghai.
Investors are very cautious, they are locking in profits in the cyclical sectors when data don't look too good, especially after the rally in the first two months this year, said Peter So, co-head of research at CCB International Securities.
Profit-taking will continue to weigh on markets going into the end of the first quarter, with earnings lacklustre, So said.
He added that China's March data will likely be similarly disappointing, but that growth in the world's second-largest economy will pick up in the second quarter, during which he believes Beijing will ease monetary policy.
Deutsche Bank analysts upgraded Huaneng Power to a buy rating while downgrading shipbuilder China Rongsheng Heavy Industries Group to a sell after their 2011 earnings results.
Deutsche analysts believe the market over-reacted to Huaneng's earnings miss, and recommends clients buy on dips given its earnings recovery looks intact, and believes prospects appear weak in shipbuilding.
Huaneng Power's president said on Thursday that Beijing is considering injecting capital into the country's massive but ailing power generation sector.
Huaneng Power jumped 4.6 percent in Hong Kong on Thursday after a 7.5 percent slump the previous day on a string of brokerage downgrades. China Rongsheng lost 0.9 percent, pushing this week's slide to 17.7 percent, almost wiping out its gains this year.
In Shanghai, growth-sensitive sectors were the biggest drags. The Shanghai materials sub-index was a standout underperformer among sectors, down 1.4 percent, with investors seen taking some profits after strong gains on Wednesday.
Aluminum Corporation of China (Chalco) slipped 2.8 percent after surging the maximum 10 percent on Wednesday. Inner Mongolia Baotou Steel Rare-Earth Group, which before Thursday had gained 27 percent this month, lost 5.5 percent.
CONSUMPTION STRENGTH SAVES THE DAY
Consumer-related stocks helped end the Hang Seng's four-day losing streak. The mainland's Ministry of Commerce research institute said on Thursday that consumption would overtake investment as China's biggest driver of economic growth in 2012 for the first time in more than a decade.
Chinese internet giant Tencent Holdings jumped 3 percent to its highest since last June.
Footwear retailer Belle International Holdings Ltd was also strong, up 3.2 percent. The stock had slumped 6.6 percent over the four days that ended Tuesday, but then on Wednesday - the day it reported 2011 earnings largely in line with expectations - surged 4.7 percent.
Chinese banks were mixed ahead of Agricultural Bank of China's (AgBank) 2011 earnings results. The first Big Four bank scheduled to post earnings this season, it shed 1.1 percent in Hong Kong but gained 1.2 percent in Shanghai.
After markets closed on Thursday, AgBank posted headline net profit that was below expectations, but its non-performing loan ratio declined to 1.55 percent at end-2011 from 2.03 percent a year earlier.
Agbank, like its peers in the Chinese banking sector, has underperformed the broader market this year. It is up 1.1 percent in Shanghai, compared with a 8 percent gain for that market's benchmark.
In Hong Kong, AgBank is up 5.4 percent this year, compared with a 13.4 percent gain for the Hang Seng Index and the 8.4 percent gain on the China Enterprises Index over the same period.