Hong Kong shares closed at their highest in almost three months on Monday, tracking an Asia-wide rally following better-than-expected U.S. jobs data on Friday that spurred gains for riskier assets.

Shares of HSBC Holdings Plc, Europe's largest bank, rose 2.2 percent to their highest since July 17. Part of the strength was due to short covering after short-selling interest averaged 16 percent of total turnover last week, dealers said.

The Hang Seng Index ended up 1.7 percent at 19,998.7, the highest close since May 10. Since that day, the benchmark has struggled to stay above its 200-day moving average, a chart level it surpassed on Monday.

Mainland Chinese markets rose to their highest in two weeks, with gains accelerating in afternoon trade. The CSI300 Index of the biggest Shanghai and Shenzhen listings rose 1.4 percent, while the Shanghai Composite Index gained 1 percent to its highest close since July 20.

But gains in both Hong Kong and China came in weak turnover, belying a lack of conviction ahead of a slew of interim corporate earnings throughout August and China's July economic data, which will start to come out on Thursday.

Jackson Wong, Tanrich Securities' vice-president for equity sales, said he advised clients on Monday "to sell into the rally because we are still vulnerable to data from U.S. and China and developments in Europe."

"Buying is still very short term and a lot of it is rotational," said Wong.

Among stocks getting rotated are growth-sensitive ones such as Li & Fung, which manages supply chains for U.S. retailers such as Wal-Mart Stores Inc and Target Corp .

On Friday, Li & Fung fell 2.3 percent after data on Thursday showed U.S. manufacturers suffered an unexpected drop in June orders.

But on Monday, after the U.S. jobs data, shares of Li & Fung soared 4.1 percent.

Li & Fung, which is expected to post interim earnings on Thursday, is now up 6.8 percent in 2012, compared with the Hang Seng Index's 8.5 percent gain. The stock is trading at 16.7 times forward 12-months earnings, a 23 percent discount to its historic median, according to Thomson Reuters StarMine.

Four out of 20 analysts have downgraded their earnings estimates for Li & Fung by an average of 2.9 percent in the past 30 days, according to StarMine.


Gains for ANTA Sports accelerated after it posted interim earnings during the midday trading break, lifting Chinese sportswear sector peers that were hammered after issuing profit warnings in the past few weeks.

ANTA shares surged more than 17 percent to their highest in four weeks as investors shrugged off a gloomy outlook for orders and cheered a dividend payout by the sportswear maker and retailer.

The Macau gambling sector was also strong after police detained more than 150 people in weekend raids on casinos and hotels following a spate of killings, which raised fears of a gang war in the world's largest gambling destination.

MGM China rose 2.2 percent, Melco Crown Entertainment gained 2.3 percent while Galaxy Entertainment climbed 1.6 percent.

The Chinese resources sector, highly tied to growth in the world's second-largest economy, was strong in mainland markets on Monday. Local media reported that Xiamen Tungsten could be a leading player in the consolidation of the rare earths industry in Fujian province.

Xiamen Tungsten jumped the maximum allowed 10 percent in Shanghai, spurring strength for rare earths sector peers, including Inner Mongolia Baotou Steel Rare-Earth Group , up 9.4 percent.

Over the weekend, China's securities regulator said it is considering a programme under which listed companies can buy back shares and use them to pay up to 30 percent of wages and bonuses for staff, a move that could boost the country's sagging stock market.

A series of measures last week helped the Shanghai Composite Index eke out its first weekly gain in seven weeks.