Hong Kong Stocks Pare Weekly Decline as Lenders Climb on Europe

Hong Kong stocks advanced, with the benchmark equity index heading for the biggest two-day gain since January, as financial companies rallied after European policy makers pledged to keep borrowing costs low for longer.

The Hang Seng Index increased 1.4 percent to 20,753.89 at 9:30 a.m. in Hong Kong, with just three of the 50 companies on the gauge falling. The Hang Seng China Enterprises Index, down more than 20 percent from the year’s high, added 2.1 percent to 9,210.05.

A gauge of banks and insurers advanced the most among the four industries in the Hang Seng Index. (HSI) China’s central bank and banking regulator will hold a joint press briefing today on financial support for the structural adjustment of the economy. Lenders also gained after Temasek Holdings Pte, the biggest foreign investor in Chinese banks, said it’s not concerned by a cash crunch that sent stocks plunging last month and plans to increase its assets in the nation.

The Hang Seng Index posted its biggest monthly decline in a year last month, declining 7.1 percent as China’s money-market rates surged to record and after Fed Chairman Ben S. Bernanke said policy makers may start dialing down stimulus if the U.S. economy shows sustained improvement.

Shares on the benchmark gauge traded at 9.72 times estimated earnings yesterday, compared with multiples of 14.66 for the Standard & Poor’s 500 Index and 12.93 for the Stoxx Europe 600 Index, according to data compiled by Bloomberg.

First Half

The Hang Seng China Enterprises Index, also known as the H-share index, capped its worst first half of a year since 2008 last week and closed 26 percent below its Feb. 1 high yesterday, meeting some investors’ definition of a bear market. The measure trades for 1.09 times the value of net assets, near levels not seen since the depths of the 2008 global financial crisis.

Just two of the 11 industries on the Hang Seng Composite Index have advanced this year. Materials and energy companies have led declines as reports signaled China’s economic growth is slowing.

The ECB’s Draghi pledged to keep interest rates at a record low for an “extended period” yesterday after Bank of England chief Mark Carney said increases in market rates weren’t warranted.

Reports this week showed expansion in China’s non-manufacturing and manufacturing industries is losing pace as the government seeks to redirect the economy away from its dependence on exports. The People’s Bank of China and the China Banking Regulatory Commission are holding a joint press briefing today at 3 p.m. to discuss financial support and structural adjustment of the economy.

China’s economic growth in the second half may be 7.6%, according to State Information Center report published in China Securities Journal. Goldman Sachs Group Inc., China International Capital Corp., Barclays Plc and HSBC Holdings Plc (5) last month pared their China growth projections this year to 7.4 percent, below the government’s 7.5 percent goal.

Futures on the S&P 500 Index (SPX) increased 0.9 percent. U.S. markets were closed yesterday for the July 4 holiday.

Hang Seng Index futures climbed 1.7 percent to 20,763. The HSI Volatility Index dropped 6.1 percent to 21.73, indicating traders expect a swing of 6.2 percent for the equity benchmark in the next 30 days.

To contact the reporter on this story: Eleni Himaras in Hong Kong at ehimaras@bloomberg.net

To contact the editor responsible for this story: Nick Gentle at ngentle2@bloomberg.net

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