Hang Seng Index
Hang Seng Index REUTERS

Stock markets in China and Hong Kong gained Monday as sentiment was buoyed on news that the euro zone will provide financial assistance to help Spain's troubled banks.

Hong Kong's Hang Seng rallied 2.35 percent or 434.84 points to 18,937.18 and Chinese Shanghai Composite rose 0.95 percent or 21.70 points to 2,303.15.

Immediate concerns over the financial crisis in the euro zone eased after the group of finance ministers from the 17-nation single currency area agreed Saturday to lend Spain $125bn to restructure its troubled banks.

The aid is expected to cover all capital requirements that Spain's banking sector needs. Spain became the largest and fourth euro zone economy to seek financial assistance, joining Greece, Ireland and Portugal, since Europe's debt crisis began.

However, unlike the other three nations, Spain's bailout is only for its banking sector and not for the economy as a whole. Meanwhile, Spain's prime minister said Sunday that despite financial support, the country would continue to suffer from high unemployment and shrinking gross domestic product.

I'd say this is a brief respite. The news from Spain is clearly not the end of the euro zone story and concerns over China remain. In this sort of environment nobody wants to stay in a position for too long, Tom Kaan, a director at brokerage Louis Capital Markets, told Reuters.

Market sentiment was also boosted after China reported a mixed set of data over the weekend, which was less worrying than what most had feared after the rate cut announced last week.

Industrial production in May was lower than expected on annual basis but picked up notably as compared to the previous month, while fixed asset investments and retail sales edged down. On the brighter side, both imports and exports reported a double digit growth in May.

Overall, we see signs of bottoming out and expect further monetary and fiscal stimulus to revive the economy. In particular, we expect another 25 basis points cut in lending rate in Q3 and another 150 basis points cut in RRR this year, said a note from Credit Agricole.

Among the stocks, HSBC Holdings Plc gained 2.78 percent and Cosco Pacific Ltd climbed 5.86 percent, while China Life Insurance Co rallied 5.79 percent in Hong Kong.