Momentum Builds in China, but Data May Cap Gains

Positive momentum is building in the Chinese market, although upside may be capped by the upcoming release of earnings and economic data.

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The Shanghai Composite Index gained for the third day in a row, adding 0.14 percent to end at 2229.19 Tuesday.

Market Factors:

The Chinese cabinet has approved regulations to support the Qianhai special economic zone, which includes allowing Hong Kong banks to lend directly to Chinese clients in the zone and other financial innovations. Qianhai is being built up as a $45 billion test zone for financial reforms.

Thirteen government ministries and departments jointly issued regulations that encourage private Chinese firms to invest overseas, effective immediately. The move is part of China's push to equalize growth in the state and private sectors.

Stocks to Watch:

Sichuan Hongda - The zinc and lead miner says its newly opened $1.6 billion molybdenum-copper project has been stopped due to public opposition. Trading in its shares was suspended on Tuesday. The Shifang municipal government on Wednesday promised to cancel the project after protests by concerned residents turned bloody as protesters clashed with special police. Local residents are worried about the health and environmental impact of the project, but the company says the project had been approved by the state planning agency and met environment requirements.

Coming Up This Week:

WEDNESDAY: Indian HSBC Services PMI, Australian Trade Balance
THURSDAY: Australian AIG Construction Index
FRIDAY: Japanese Leading Index

—By Cheng Lei, CNBC Asia Pacific