HONG KONG (XFN-ASIA) - Share prices were sharply higher as China banks surged on hopes that eased restrictions on bank lending on the mainland will help stem a decline in earnings growth.

The People's Bank of China (PBoC) admitted that it has abandoned tough caps on lending introduced at the start of this year, as authorities scramble to insulate the economy from global turmoil.

A spokesman for the central bank also hinted in a report carried by the Xinhua news agency that the PBoC may reduce interest rates further to shore up economic growth.

Johnson Electric slumped more than 13 pct after warning of lower net profit for its fiscal first-half to September due to a 29 mln usd loss in its trading business. The company also projected lower sales for the second half.

At 10.45 am, the Hang Seng index was up 788.91 points or 5.65 pct at 14,757.58, off a low of 14,436.03 and high of 14,794.99.

Turnover was 13.24 bln hkd.

"China Banks led the early gains after China eased loan caps, while other large caps also moved in line with the market after a stabilized US bourse last Friday," said Matthew Kwok, research head at Tanrich Securities.

Beijing's move provided a catalyst to Chinese banks after their poor performance last month, but eased loan restrictions may not necessarily boost their earnings much given the slowing economy, he said.

"Chinese banks now may be more cautious in lending money to homebuyers or companies amid the weak global economy," Kwok said, noting that banks are closely monitoring non-performing loans ratios.

China banks may see quick profit-taking, he said, adding that the benchmark index will see resistance at the 15,000 level.

Kwok said investors will focus on upcoming US economic data and the outcome of the US presidential election on Tuesday.

Among data due this week in the US is the October employment report.

China banks outperformed, with ICBC up 0.22 hkd or 6.21 pct at 3.76, China Construction Bank rising 0.24 hkd or 6.49 pct to 3.94, Bank of Communications surging 0.31 hkd or 7.01 pct at 4.73 and Bank of China up 0.12 hkd or 5.43 pct at 2.33.

China Merchants Bank rose 0.80 hkd or 6.96 pct at 12.3 and China CITIC Bank was up 0.21 hkd or 9.13 pct at 2.51.

Among large caps, HSBC was up 1.60 hkd or 1.74 pct at 93.6, China Mobile gained 3.20 hkd or 4.72 pct at 71.0, Hong Kong Exchanges and Clearing was up 2.2 hkd or 2.9 pct at 77.95 and China Life rose 0.95 hkd or 4.67 pct at 21.30.

Ping An Insurance was up 1.85 hkd or 5.78 pct at 33.85.

CLP Holdings surged 2.7 hkd or 5.19 pct to 54.7 after a report that the utilities firm has been short-listed to bid for the third Singapore power asset put up for sale by Temasek Holdings, an investment arm of the Singapore government.

Cathay Pacific was up 0.45 hkd or 4.82 pct at 9.78 on news that it plans to sell five aircraft.

Johnson Electric slumped 0.22 hkd or 13.75 pct to 1.38. The company expects to report a net profit at 46 mln usd for its fiscal first-half to September, as a profit of 75 mln usd from its manufacturing and distribution operations will be undercut by a loss of 29 mln usd in its trading business.

It also warned that its second half sales will be lower than first half level.

Johnson Electric posted a net profit of 79.8 mln usd in the six months to September 2007.

China property firms were sharply higher on hopes for easier credit. Agile Property soared 0.31 hkd or 12.55 pct to 2.78, Guangzhou R&F Properties gained 0.31 hkd or 8.73 pct to 3.85 and China Overseas Land was up 0.97 hkd or 11.44 pct at 9.45.

Other China stocks also surged, with resources stocks outperforming.

Oil producer CNOOC jumped 0.58 or 9.21 pct to 6.88 and PetroChina was up 0.30 hkd or 5.29 pct at 6.0 following a rise in crude oil prices.

China Petroleum and Chemical Corp (Sinopec) was up 0.18 hkd or 3.58 pct at 5.21.

Among other resources counters, Angang Steel surged 0.36 hkd or 7.86 pct to 4.94, Chalco was up 0.24 hkd or 8.42 pct at 3.09, Anhui Conch up 1.85 hkd or 7.76 pct at 25.7 and China Shenhua rose 0.92 hkd or 6.57 pct to 14.92.

Construction related stocks were also higher, with China Communications Construction surging 0.87 hkd or 16.48 pct to 6.15, China Railway Group up 0.21 hkd or 4.77 pct at 4.61 and China Railway Construction up 0.62 hkd or 6.61 pct at 10.0.

Local property developers drew rotational interest after lagging the market last week.

Cheung Kong rose 5.65 hkd or 7.79 pct to 78.2, Sun Hung Kai was up 3.7 hkd or 5.65 pct at 69.2, and Henderson Land was up 1.25 hkd or 4.61 pct at 28.35.

Among local banks, Hang Seng Bank was up 4.2 hkd or 4.42 pct at 99.2, BOC Hong Kong up 0.22 hkd or 2.56 pct at 8.8, Bank of East Asia up 0.72 hkd or 4.77 pct at 15.82.

The Hang Seng China Enterprises index was up 460.98 points or 6.97 pct at 7,072.13.

(1 usd = 7.8 hkd)

roby.lau@xfn.com - xfnrl/xfnrc

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