China shares rally, spur Hong Kong on hopes for market boosting steps

* HSI up 0.5 pct but off earlier highs, drop in euro weighs

* CSI300 up 2.2 pct, Shanghai Comp up 2 pct

* Sinopec shares near 5-month high, lead energy sector rally

* ZTE shares slump 5.6 percent, extend drop on U.S. Congressreport

* China Molybdenum triples in Shanghai IPO debut, shareshalted

(updates to close) By Vikram Subhedar

HONG KONG, Oct 9 (Reuters) - China shares posted healthygains on Tuesday and lifted Hong Kong markets to near afive-month high as hopes of more market-supporting measures fromBeijing spurred rallies in large-cap banking and energy shares.

The Hang Seng rose 0.5 percent but closed off earlierhighs, which were the strongest levels since early May. A suddendrop in the euro after China's onshore markets had closedtriggered a pullback in Asian markets that weighed on Hong Kong.

Fresh worries about Greece and uncertainty about when Spainwill apply for a bailout saw the euro fall from recent highs,dragging down other risky assets.

Earlier, The CSI300 index of top Shanghai andShenzhen listings closed up 2.2 percent while the ShanghaiComposite rose 2 percent, with gains coming in strongvolumes in a sign that investors were returning to the market.

That supported shares of Chinese banks and oil producers inHong Kong, which carry the biggest weightings in the localbenchmark indexes, and helped the China Enterprises index

close up 1.3 percent.

A report in the China Daily said market regulators hadpledged to speed up approvals for quotas for Qualified ForeignInstitutional Investors (QFIIs), the only way for offshoreinvestors to directly access China's domestic markets.

"A lot of investors are underweight China in theirportfolios so any talk on QFII is likely to encourage them tostart getting involved again," said Tom Kaan, a director atLouis Capital Markets in Hong Kong.

The report comes after Chinese regulators cleared the wayfor overseas investors to buy more than $30 billion worth ofstocks and bonds in China, exceeding the previous programmelimit, as Beijing seeks to attract more foreign portfolioinvestors.

It also comes amid speculation of more government fundsbeing put to work to boost investor confidence.

China's largest listed broker Citic Securities rose 3.2 percent in Shanghai. Industrial Securities

rose 10 percent, the biggest gainer on the CSI300,while Haitong Securities rose 3.5 percent.

In a sign of returning risk appetite, shares of ChinaMolybdenum Co Ltd nearly tripled after listing inShanghai before trading was suspended.

But there was no respite for ZTE Corp shares,which extended losses to fall 5.6 percent after a U.S.congressional report said the company could pose a securitythreat dashing hopes of expansion plans.

ZTE shares have lost more than 11 percent since lastFriday's close.


ICBC shares rose 1.5 percent and were the topboost on the Hang Seng after a report that China's CentralHuijin Investment, a state-owned asset management company, hadbought 6.3 million shares of the bank in the third quarter.

That led to speculation that Huijin may lift its stake inother Chinese banking shares, traders said, as authorities tryto restore confidence among the mainland's retail investors.

"Markets have gotten caught up in this talk of governmentfunds buying banking shares before and I'd be careful aboutchasing this move," said Kaan.

Chinese financials listed in Hong Kong are flat forthe year, compared with a 14.2 percent rise on the Hang Seng.

Energy shares, in particular oil producers which havesuffered over the past week as crude prices weakened, alsorecovered. Sinopec surged 3.8 percent to break aboveits Aug. 17 high, while Petrochina rose 2.1 percent.

Shares of department store operator Lifestyle InternationalHoldings jumped 4.9 percent, recovering from Monday'sweakness in retail shares, after the company said it may spinoffits property business.

(Editing by Kim Coghill)

((vikram.subhedar@thomsonreuters.com)(+852 28436975))