China shares in biggest daily gain

HONG KONG, Jan 22 (Reuters): China shares chalked up their biggest daily gain in two months on Wednesday, lifting Hong Kong markets as cash rates in the mainland eased further after the Chinese central bank pledged to ensure stability in the money markets.
Gains came in robust volumes in both markets as the battered Chinese property sector led the rebound from multi-month lows. The resurgent mainland market spurred more short-covering in the Chinese financial sector in Hong Kong.
The CSI300 of the largest Shanghai and Shenzhen A-share listings ended up 2.6 per cent at 2,243.8 points, while the Shanghai Composite Index climbed 2.2 per cent. This was their strongest single-day gain since November 18, when markets first reacted to the detailed outcome of the Communist Party's third plenum, a key policy meeting.
The CSI300 benchmark had closed on last Monday at its lowest since July 9 after China's benchmark seven-day repo rate soared to as high as 10 per cent, just shy of the 11.2 per cent record closing high seen at the end of June.
The China Enterprises Index of the leading Chinese listings in Hong Kong rose 1.1 per cent, while the Hang Seng Index inched up 0.2 per cent to 23,082.3 points as Hong Kong turnover jumped some 23 per cent above its 20-day average.
Gains came in the strongest Shanghai volumes since December 16 that was also nearly 40 per cent above its average in the last month as investors also cheered comments from Premier Li Keqiang that Beijing is confident of "stable" economic growth this year.
Short selling in Hong Kong accounted for 9.2 per cent of total turnover, compared with the 8 per cent historical average.
"The cyclicals and the blue chips are leading the rebound today, which usually point at policy relief. It's more a relief rally at this point, especially since some of these growth-sensitive counters have been hit quite badly," said Cao Xuefeng, a Chengdu-based analyst with Huaxi Securities.
The relief may not last too long, with three more scheduled open market operations due before the Lunar New Year holiday starts next Friday. The HSBC manufacturing flash purchasing managers' index for January is due on Thursday.
There are concerns about excess share supply, said Arnout van Rijn, Robeco's lead Asia Pacific portfolio mananger. This could get particularly acute with a tightening money supply, with more than 700 applications and only about 50 approvals so far after a halt of more than a year.
Still, mid-sized lenders Industrial Bank jumped 2.9 per cent in Shanghai and Ping An Bank spiked 3.8 per cent in Shenzhen as China's benchmark 7-day repo rate eased by as much as 188 basis points from Tuesday's close.
The central bank dumped 255 billion yuan ($42 billion) into the interbank market in the first of two scheduled open market operations on Tuesday, its first injection since December 24 and the largest amount in a day in 11 months.
Following that, the People's Bank of China said on its twitter-like Weibo account late on Tuesday that it had already provided short-term funding to small- and medium-sized financial institutions, amid fears another cash squeeze was building similar to one last June and December.