Hong Kong shares snap losing streak, China's index down

Hong Kong shares snapped a seven-day losing streak on Monday as banks led a late rally, setting up the benchmark for a possible bounce from oversold conditions if inflation data from China on Tuesday comes in better than expected. Property developers remained weak, however, capping gains, after the Hong Kong government on Friday announced more measures aimed at reining in surging property prices in the territory.
The Hang Seng Index closed up 0.4 percent, recovering from earlier losses after finding support close to its March low of 22,123.3 points, a level traders say could provide a floor for the market. It had lost more than 5 percent over the previous seven sessions, with its relative strength index nearing the threshold mark of 30 which denotes a security is technically oversold. Turnover remained weak, however, falling to its lowest this month, as market players resisted from making big bets ahead of Chinese inflation data.
Analysts expect inflation edged up to 5.4 percent in May, according to a Reuters poll. A weaker reading could ease fears of prolonged policy tightening by Beijing, fears which have dogged Chinese markets for more than a year, while a higher number could sap investor confidence further.
China's annual inflation rate in June may accelerate to more than 6 percent, which could bring the full-year consumer price index for 2011 to as high as 5 percent, a government researcher said in remarks reported on Sunday. Banking shares, which had seen a steady pickup in short-selling over uncertainty surrounding local government debt and capital requirements, rose as low valuations drew in investors.
Shares of top mortgage lender China Construction Bank advanced 1.6 percent, providing the biggest boost to the benchmark. CCB shares trade at a 38 percent discount to their historical forward 12-month earnings multiple, according to Thomson Reuters Starmine. Property shares extended losses, however, keeping the broader market's gains in check.
The latest round of Hong Kong government measures could weigh on developers' home sales, said Alan Lam, greater China analyst at Julius Baer.
Hong Kong on Friday unveiled its fourth package of measures since October 2009 to curb runaway property prices, increasing the supply of land available to build homes and tightening mortgage restrictions. The property sector sub-index fell 0.3 percent. Industry bellwether Sun Hung Kai Properties Ltd fell 0.7 percent while Sino Land dropped 1.7 percent.
Conglomerate Citic Pacific fell 5.8 percent to its lowest close this year, bringing its two-day loss to nearly 10 percent over concerns that Australia's contentious mining tax will impede its large iron ore operations in the country. China's main stock index ended down 0.2 percent after losing more than 1 percent in the morning session, but investors remained wary ahead of Tuesday's inflation data.
The benchmark Shanghai Composite Index finished down at 2,700.4 points at a four-and-half-month low, extending a 0.8 percent loss over the week last week. Analysts said investors expect the central bank to raise interest rates in the near term due to persistently high inflation, which will cap gains on the share index. But some analysts noted the index managed to climb off early lows and said it could find support around 2,700 points.
"The index may find support during June. It has less potential to fall further," said Zhang Qi, an analyst at Haitong Securities in Shanghai. Almost all 14 security houses listed in Shanghai and Shenzhen fell, while Haitong Securities Co lost 1.5 percent and GF Securities Co dropped 1.4 percent. China's main stock index for hard-currency "B-shares" slumped nearly 5 percent in morning trade but pared losses to close at 244.1 points, down 2.3 percent.