Hong Kong shares at more than 2-1/2-year high, coal buoys China

Clement Tan
Wednesday, 27 Nov 2013 | 11:28 PM ET

* HSI +0.6 pct, H-shares +0.8 pct, CSI300 +1.6 pct

* Gains coming in relatively lackluster volumes

* China coal lifted by Beijing pledge to support sector

* China power producers sink on hopes of higher coal prices

HONG KONG, Nov 28 (Reuters) - Hong Kong shares touched their highest in more than 2-1/2 years early on Thursday, led by Chinese coal companies after Beijing pledged further support for the sector struggling with overcapacity.

Mainland Chinese markets were also stronger, but gains in both on- and offshore markets came in relatively lackluster volumes, partly due to lingering liquidity concerns in the mainland and the U.S. Thanksgiving holiday.

By midday, the Hang Seng Index was up 0.6 percent at 23,956.2 points, earlier testing its highest intra-day level since late April 2011. The China Enterprises Index of the top Chinese listings in Hong Kong rose 0.8 percent.

The CSI300 of the leading Shanghai and Shenzhen A-share listings climbed 1.6 percent, while the Shanghai Composite Index gained 1.3 percent. Both are now at their highest intra-day levels since late October.

"I wouldn't read too much into the price moves on the day, anything can happen in a low volume market," said Hong Hao, chief strategist at Bank of Communication International. I'm not saying there will not be any upside from here, but that it will likely come in heightened volatility."

"The melt-up (in Hong Kong) in the last two weeks was largely due to short covering, and that appears to be coming to an end," he added.

Short selling interest in Hong Kong, which has consistently topped 10 percent earlier this year, has dropped off to about 8 percent of total turnover since Nov. 18.

On Thursday, smaller coal producers such as Anyuan Coal had bigger percentage gains, jumping the maximum 10 percent limit in Shanghai, on hopes it would benefit more from official measures that are seen supporting coal prices.

Other than encouraging consolidation to reduce competition, Beijing will also raise the threshold for coal imports by strengthening quality checks and encouraging high-quality imports, as well as reducing taxes and fees on coal producers.

China Shenhua Energy Co Ltd , the country's largest coal producer, climbed 1.3 percent in Hong Kong and 2 percent in Shanghai. Gains on the day helped trim steep losses on the year, Shenhua's H-shares are still down 22 percent, while its A-shares are down 32.4 percent.

Energy and material sub-indexes were standout outperformers, with the CSI A-share resource industries index jumping 3 percent. Strength in battered coal counters buoyed gains for other growth-sensitive sectors such as cement, property, industrial and financials.

Chinese coal-based power producers slid in Hong Kong on hopes of higher coal prices.

Huaneng Power fell 1.2 percent, while Datang Energy dropped 1.4 percent, hurt further by a 12 percent cut in net profit forecast by Citi analysts on a lower-than-expected natural gas sales price from its Keqi coal-to-gas project.

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