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SHANGHAI: China and Hong Kong stocks rose on Friday, led by property shares, as China Evergrande Group unexpectedly supplied funds for a bond interest payment, while comments from the banking regulator also underpinned the property market.

Evergrande has supplied funds to pay interest on a U.S. dollar bond, a person with direct knowledge of the matter told Reuters on Friday, days before a deadline that would have seen the developer plunge into formal default. Evergrande did not respond to requests for comment.

But energy and mining shares fell, as coal futures extended losses after Beijing signalled it would intervene to cool surging prices that contributed to the country's electricity shortage.

China's blue-chip CSI300 index rose 0.9% in morning trade, while the Shanghai Composite Index gained 0.1% as the Evergrande news helped improve sentiment. Hong Kong's Hang Seng index added 0.4%.

"In the short term, we believe the interest repayment should provide a fillip to Chinese risk assets, including the yuan and Chinese equities," said Wei Liang Chang, Macro Strategist at DBS Bank, Singapore.

Hong Kong stocks start with losses

"Evergrande default risks, though not dissipated, have likely been deferred for some time."

Sentiment in the sector, which had been badly hurt by Evergrande's debt crisis, also recovered after China's banking regulator on Thursday urged lenders to fulfil credit needs for basic demand and support mortgage lending to first-home buyers.

"We note regulators have softened tones to prevent over-tightening on property, and witness marginally easing measures on property-related loans," Citi said in a research note, expecting the mortgage rate in certain regions to fall over time.

The average mortgage rate in China's major cities declined in October, the first monthly drop this year, Caixin reported on Friday, citing Beike Research Institute.

China's CSI300 Real Estate Index ended the morning session up 2.4%, having jumped as much as 6.5%. An index tracking Hong Kong-listed mainland developers gained 3.9%, with Evergrande shares surging as much as 7.8%.

An index tracking China's coal producers tumbled 3.9%, while the CSI Energy index dropped 3.4%.

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