China shares set for best day in 2 weeks, lift Hong Kong
* HSI +0.5 pct, H-shares +0.8 pct, CSI300 +2.2 pct
* HSI fails again at resistance at May 2011 high
* Chinese cbanker's comments boost banking stocks
* China Cosco hammered by profit warning
HONG KONG, Jan 28 (Reuters) - China shares could post their best daily gain in two weeks on Monday, lifting the Hong Kong market, as investors welcomed comments from a senior central bank official seen as a tacit admission that bank profits needs to be protected.
Pan Gongsheng, a deputy governor of the bank, said that the pace and timing of freeing interest rates must consider banks' profitability and capability of replenishing capital, as the two factors affect credit supply to the whole economy.
The Hang Seng Index went into the midday trading break up 0.5 percent at 23,688.7 after briefly breaching chart resistance at about 23,708, the peak on May 31, 2011. The China Enterprises Index of the top Chinese listings in Hong Kong rose 0.8 percent.
In the mainland, the CSI300 of the top Shanghai and Shenzhen listings jumped 2.2 percent, while the Shanghai Composite Index climbed 1.6 percent, on track for their best daily showings since Jan. 14.
If they hold onto gains on the day, both indexes would have also broken out of a trading range that has contained their movements for about two weeks, suggesting further gains are possible.
"Mid-sized Chinese banks are going to outperform bigger rivals, partly given their lower base, but also because they have been more aggressive in innovating financial products," said Hong Hao, Bank of Communication International's chief strategist.
Mid-sized banks extended their strong start to the year. China Minsheng Bank jumped 5.4 percent to its highest in five years in Shanghai, and gained 2.4 percent in Hong Kong.
Minsheng Bank's Shanghai shares are now up 25 percent in January after gaining 33 percent in 2012. Reports last week suggest Minsheng is among the top five most sought-after stocks among mainland fund managers.
Investors also cheered a plan to double the number of A-share listings eligible for short selling or margin trading, bolstering shares of Chinese brokerages.
Haitong Securities surged 5.6 percent in Shanghai while climbing 2.6 percent in Hong Kong.
UNEVEN PROFIT RECOVERY
Profits earned by China's industrial companies rose 17.3 percent in December from a year earlier to 895.2 billion yuan ($143.91 billion), official data showed on Sunday, as a fourth-quarter recovery helped offset weaker corporate results in the third.
But in a sign that this recovery does not encompass all sectors, shares of China Cosco Holdings dived after the world's largest bulk cargo fleet operator said it expects a second-straight year of losses in 2012.
Its Hong Kong shares plunged 5.8 percent to its lowest in a month, while its Shanghai listing faces the prospect of delisting if the company does not turn a profit in 2013.
Under China's securities regulations, companies that report two consecutive years of losses get placed in the "special treatment" category, which limits the daily trading movement of their shares to 5 percent instead of 10 percent.
Kweichow Moutai dived 4.7 percent, hit by a Credit Suisse downgrade from overweight to neutral after the company last week posted below-expectations preliminary corporate earnings.