China shares on Tuesday surged 4.2 percent, their biggest one-day gain in more than 27 months, after Beijing reported that the world's second-largest economy grew faster than expected in the last quarter of 2011, although at its weakest pace in 2-1/2 years.
The Shanghai Composite Index, ending a four-day losing streak with its largest rise since a 4.8 percent spike on Oct. 9, 2009, closed at 2,298.4 points, just shy of the 2,300 resistance that the benchmark could not breach last week.
The China Enterprises Index of the top mainland listings in Hong Kong soared 4.5 percent, lifting the broader Hang Seng Index 3.2 percent, bolstered by strength in growth-sensitive sectors such as materials.
The Hang Seng Index broke above resistance at 19,242, which constrained the benchmark last week, with the next target now seen at the November high near 20,100.
But traders in Hong Kong said Tuesday's strength was largely due to short covering with some selling long positions into strength. They said this suggested a lack of conviction from parts of the market for whom the GDP data deflated expectations of near-term policy easing.
For the Shanghai Composite, the 2,300 level was the base before losses accelerated in December.
2,300 will be very tough to beat on the Shanghai Composite. You need fresh catalysts to break such stiff resistance, so it will be very interesting to watch and see if people are going to load on more risk ahead of Chinese New Year, Alan Lam, Julius Baer's Greater China equity analyst, told Reuters.
China reported fourth-quarter year-on-year economic growth of 8.9 percent, slightly bettering the 8.7 percent Reuters consensus, but with an even sharper slowdown seen in coming months as export demand fades and the housing market falters.
Economists had divergent readings of Tuesdaysdata, with Credit Suisse among the more bearish. It said the new GDP number suggested that meaningful stimulus in the near future was less likely, and forecast growth to moderate further in the next two quarters.
Some market watchers also attributed Tuesday's strength partly to mainland media reports indicating that the national social security fund will receive 100 billion yuan in local pension funds from an unnamed southern province that it could then invest in markets.
Beijing also approved 14 foreign institutions to invest in the Chinese capital markets in December alone, boosting the number of such licences granted last year to a record 29, in the latest sign of wanting inbound investment to aid a slowing economy and sluggish stock market.
GROWTH-SENSITIVE SECTOR LEAD GAINS
The growth-sensitive materials sector was a standout outperformer in Hong Kong and the mainland, with the Shanghai materials sub-index soaring 8.3 percent.
Aluminum Corp of China Ltd (Chalco) surged the maximum 10 percent in Shanghai. Its Hong Kong listing also gained 8.1 percent in more than twice its 30-day average volume -- after shedding 52 percent in 2011.
Gains on Tuesday came in the highest turnover in Hong Kong since December 1, but volume was still some 30 percent below the level reached a day after Beijing cut reserve requirements for commercial lenders for the first time in three years.