China shares up despite weak PMI, HK at one-week high

HONG KONG/SHANGHAI, Mar 24 (Reuters): Shares in Hong Kong and China shares rose on Monday as a weak factory survey heightened expectations that Beijing will have to unveil stimulus measures soon to avert a sharper downturn in the world's second-largest economy.

China's factory activity contacted for the third month in a row in March, falling to an eight-month low of 48.1 from February's final reading of 48.5, the flash Markit/HSBC Purchasing Managers' index showed.

By midday, the Hang Seng Index was up 1.1 per cent at 21,673.21 points, its highest since March 13. The China Enterprises Index of the top Chinese listings in Hong Kong rose 2 per cent to its highest since March 7.

The CSI300 of the leading Shanghai and Shenzhen A-share listings rose 0.4 per cent, while the Shanghai Composite Index was up 0.5 per cent at 2,057.70 points.

"It (the flash PMI) was another bad sign the Chinese economy is softening. It was pretty much expected, so a lot of investors are looking for the Chinese government to roll out some meaningful stimulus on infrastructure or urbanisation themes," said Jackson Wong of Tanrich Securities in Hong Kong.

Market sentiment was also buoyed by expectations that Beijing will soon allow big firms such as banks to sell preferred shares to raise capital, averting a potential deluge of sales of common stock which would dilute valuations.

China's securities regulator announced rules for a pilot programme allowing listed companies to issue preferred shares after the market close on Friday. Analysts have widely predicted banks will be the first to issue preferred shares in the trial.