Hong Kong, Shanghai extend surge as China optimism boosts markets

Hong Kong and Shanghai ploughed on with their China-fuelled rally Friday on hopes that Beijing will press on with new plans to boost the world's number two economy.

A string of announcements this week has seen leaders cut interest rates, pledge support to the beleaguered property sector, free up banks to lend more and pledge to boost jobs, particularly for the poor.

While analysts have warned that the measures -- the boldest in years -- will not on their own be enough to get the economy back on track, they have provided some much-needed cheer to investors and raised hopes that the government is listening to calls for major help.

They also come amid a more upbeat mood on trading floors after the Federal Reserve's bumper rate cut last week and indications that more were in the pipeline through to 2026. The bank's policy outlook will be in focus later Friday with the release of its preferred gauge of inflation.

On Friday, Chinese officials said they had cut the amount of cash banks must hold in reserve in a bid to get them lending more to revive economic activity -- a move that would pump more than $140 billion into financial markets.

Meanwhile, a Bloomberg report said on Thursday that Beijing is considering pumping a similar amount into the country's large state-run banks in the first such move of support since the global financial crisis.

"Beijing seems finally determined to roll out its bazooka stimulus in rapid succession," said Nomura chief China economist Ting Lu.

"Beijing's recognition of the severe situation of the economy and lack of success in a piecemeal approach should be valued by markets," he said in a note.

Hong Kong soared more than three percent in opening trades before paring the gains, while Shanghai was also sharply higher -- both markets are now up around 10 percent from Friday's close.

Property stocks were again among the best performers in Hong Kong, with beaten-down developers enjoying some much-needed interest. Kaisa surged more than 40 percent, Fantasia rose more than six percent and Sino-Ocean added five percent.

Tokyo, Sydney, Wellington and Taipei also rose but Singapore, Seoul, Manila and Jakarta dipped.

Stephen Innes, managing partner at SPI Asset Management, said: "Chinese stocks are sizzling, setting the stage for their best week in a decade, and the ripple effect is being felt across global markets. Risk assets everywhere are catching fire.

"However, this momentum might hit a speed bump on Friday as traders could look to lock in profits ahead of the weekend," Innes said.

With the end of the quarter coming and China's markets closing for a holiday from October 1 to 7, caution may creep into the market, he added.
"Profit-taking could cool things down, but the bullish mood is undeniable for now."

Crude prices extended losses as expectations for a bump in output from Libya offset renewed hopes for China's economy and worries about the crisis in the oil-rich Middle East.

Key figures around 0230 GMT

Tokyo - Nikkei 225: UP 0.1 percent at 38,964.65 (break)

Hong Kong - Hang Seng Index: UP 2.0 percent at 20,322.41

Shanghai - Composite: UP 1.0 percent at 3,030.74

Euro/dollar: DOWN at $1.1166 from $1.1174 on Thursday

Pound/dollar: DOWN at $1.3391 from $1.3412

Dollar/yen: UP at 145.09 yen from 144.87 yen

Euro/pound: UP at 83.39 pence from 83.31 pence

West Texas Intermediate: DOWN 0.5 percent at $67.33 per barrel

Brent North Sea Crude: DOWN 0.5 percent at $71.25 per barrel

New York - Dow: UP 0.6 percent at 42,175.11 (close)

London - FTSE 100: UP 0.2 percent at 8,284.91 (close)