(Reuters) - Weaker-than-expected Chinese trade data on Tuesday accelerated share-price gains in Shanghai and Hong Kong by boosting hopes that Beijing will relax monetary policy to counter a slowdown in the world's second-largest economy.
The Shanghai Composite Index closed up 2.7 percent at 2,285.7 points, just shy of the 2,300 mark seen as near-term resistance.
Gains in Shanghai, which rose for a third straight day and reached its highest level since Dec. 13, supported shares in Hong Kong. The China Enterprises Index jumped 1.8 percent, in turn helping the broader Hang Seng Index increase 0.7 percent to close at 19,004.3 points.
Turnover in Shanghai, whose benchmark index hit a 34-month intraday low last Friday, was the highest since Nov. 3.
On Monday, Shanghai had its biggest one-day gain in three months, 2.9 percent, after state-owned parent groups moved to increase their stakes in the mainland listings of United Network Communications (China Unicom), China Shenhua Energy Co Ltd and China Petroleum & Chemical Corp (Sinopec) .
On Tuesday, these three stocks were among the top boosts in Shanghai, gaining 3.5, 2.9 and 0.5 percent respectively. Chinese insurers, often seen as barometers of the mainland markets given their large investments, were also strong.
The previous government intervention in October 2011 triggered a rally that lasted about two weeks in Shanghai and slightly more than one a week on the China Enterprises Index.
Moves in the mainland markets always tend to be more psychological, particularly since we have lost more than 30 percent in the last two years, said Zhang Qi, a Shanghai-based analyst with Haitong Securities.
Large caps were particularly strong, with the broader CSI300 Index, which tracks stocks listed in both Shanghai and Shenzhen bourses and is more weighted towards large caps, up 3.4 percent.
The Shanghai benchmark ranked among the worst performing in Asia in the last two years, slumping 14.3 percent in 2010 and 21.7 percent in 2011 as Beijing tightened monetary policy to contain surging inflation.
On Tuesday, data showed China's exports and imports in December grew at their slowest pace in more than two years as foreign and domestic demand ebbed. This followed Sunday's stronger-than-expected December loan growth and money supply data.
China economy will avoid a hard landing despite average home prices projected to decline between 10 and 20 percent in 2012, a Reuters poll showed on Tuesday.
Investors were also cheered by comments from China's top stock market regulator, who vowed to press on with reforms to clean up initial public offerings and delistings as well as encourage bond issuances so investors get better deals, the official Xinhua news agency reported late on Monday.
This follows mainland media reports on Monday that the China Securities Regulatory Commission (CSRC) was considering steps to cool speculation on initial public offerings, including allowing institutional investors buy more IPO shares.
Market watchers said mainland exchanges were also helped by improved money supply conditions. China's main lending rates fell on Tuesday with the People's Bank of China not draining funds via open market operations until end-January to help meet large cash demand before the Lunar New Year.
A-SHARE STRENGTH SPURS H-SHARES
In Hong Kong, gains came in the highest turnover in almost a month -- which at HK$57.4 billion, was about 28 percent above the 20-day moving average.
Short-selling interest at midday accounted for just more than 7 percent of total turnover, traders said. Full-day data was not immediately available at market close.
China banks were the top boosts to the Hang Seng Index, with Industrial and Commercial Bank of China (ICBC) gaining 1.8 percent and China Construction Bank (CCB) 1.6 percent.
The H-share listings of Sinopec and Shenhua Energy gained 1.4 and 1.2 percent, respectively. But China Unicom (Hong Kong) Ltd lost 1.7 percent as investors moved out of defensive names and into more growth-sensitive counters.
In a note to clients dated Jan. 9, HSBC China equity strategists said the outcome of the National Financial Working Conference (NFWC) held over the weekend could be a game changer over the long run.
They pointed out that China's equity markets have in the past reacted positively to once-in-five-year sessions, rising 15-20 percent in the six months that followed the previous meetings in 1997, 2002 and 2007.