Hong Kong stocks end flat

HONG KONG: Hong Kong shares ended flat in cautious trade on Friday after China said inflation had soared to a 32-month high in March.

The benchmark Hang Seng Index edged down 5.93 points to 24,008.07 on turnover of HK$72.23 billion ($9.30 billion).

Beijing said the economy grew 9.7 percent year-on-year in the first quarter -- beating forecasts of 9.5 percent -- but inflation hit a 32-month high of 5.4 percent, fuelling expectations of more rate hikes and lending restrictions.

The rise in inflation, fuelled by soaring food costs, came despite the central bank increasing interest rates four times since October.

"On the one hand, people who look at the data may feel the China government may need to take more tightening measures," Mark To, head of research at Wing Fung Financial Group, said.

"But on the other, the data shows a positive picture of economic growth."

And Daniel So, analyst at Sun Hung Kai Financial, said: "The China inflation growth rate may only start to slow in the second half of 2011, and the strong inflation numbers are expected to continue to weigh on trading sentiment in Hong Kong during the second quarter."

Hong Kong property companies fell on concerns over the mortgage rate upcycle after HSBC hiked mortgage rates from Friday, triggering worries that other lenders may follow suit.

Hong Kong's biggest developer, SHK Properties, fell 1.3 percent to HK$125.30 and Sino Land lost 0.6 percent to HK$14.06.

HSBC fell 0.7 percent to HK$83.10.

China developers were lower as the China data rekindled concerns over fresh tightening in the near term. Evergrande lost 4.1 percent to HK$5.25 and R&F Properties fell 1.4 percent to HK$11.30.

But Chinese shares closed up 0.26 percent, reversing early losses as optimism about corporate earnings and attractive valuations offset worries over the potential for more tightening, dealers said.

The Shanghai Composite Index, which covers both A and B shares, was up 7.89 points at 3,050.53 on turnover of 148.7 billion yuan ($22.6 billion dollars).

"The data indicates the economy is still expanding steadily, which helped ease concerns over the possibility of a stagflation in the economy and lent support to the (positive) sentiment," Zhou Lin, an analyst from Huatai Securities, told Dow Jones Newswires.

Property developers led the gains thanks to their attractive valuations, traders said.

Poly Real Estate Group rose 2.3 percent to 14.15 yuan and COFCO Property added 2.3 percent to 6.73 yuan.

Banks also strengthened on hopes for strong first-quarter results.

Shenzhen Development Bank ended up 3.0 percent at 18.73 yuan and Citic Bank climbed 2.1 percent to 5.82 yuan.