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Hong Kong Stocks Rise Toward 2-Month High as China Output Grows

Hong Kong stocks rose, with the benchmark index (CPMINDX) headed for its highest close in almost two months, after China’s manufacturing unexpectedly strengthened in July.

The Hang Seng Index gained 1 percent to 22,108.34 as of 9:33 a.m. in Hong Kong, headed for its highest close since June 4. All but three stocks advanced on the 50-member gauge, which yesterday capped its biggest monthly increase since September. The Hang Seng China Enterprises Index of mainland companies listed in the city rose 1 percent to 9,755.82.

The Hang Seng Index fell 3.4 percent this year through yesterday, the worst performance among developed markets tracked by Bloomberg, sliding as growth weakened in China and on concern the Federal Reserve will taper stimulus in the U.S. The gauge yesterday traded at 10.4 times estimated earnings, compared with 15.3 for the Standard & Poor’s 500 Index.

China’s Purchasing Managers’ Index was at 50.3 in July, the National Bureau of Statistics and China Federation of Logistics and Purchasing said today in Beijing. That compared with the 49.8 median forecast of 35 analysts in a Bloomberg News survey and June’s 50.1 level. Readings above 50 indicate expansion.

Materials and energy companies led declines this year on the Hang Seng Composite Index on concern demand would weaken as China’s economy growth slowed.

Futures on the S&P 500 rose 0.5 percent today. The U.S. equity gauge slid less than 0.1 percent yesterday, erasing earlier gains after the Federal Reserve refrained from indicating when it will reduce the pace of stimulus and data showed the economy grew more than projected in the second quarter.

Fed’s Pledge

The Fed repeated the pledge it has used since September, that it will continue purchases until the U.S. labor market outlook has improved substantially. Policy makers left unchanged their commitment to hold the target interest rate near zero as long as the jobless rate remains above 6.5 percent and the outlook for inflation over one to two years doesn’t exceed 2.5 percent.

The Hang Seng China Enterprises Index, also known as the H-share index, fell as much as 27 percent from a Feb. 1 high, meeting some investors’ definition of a bear market. The measure traded at 1.17 times the value of net assets yesterday, 34 percent lower than its five-year average of 1.78.

Hang Seng Index (HSI) futures climbed 1 percent to 22,081. The HSI Volatility Index dropped 4 percent to 17.41, indicating traders expect a swing of 5 percent for the equity benchmark in the next 30 days.

To contact the reporter on this story: Kana Nishizawa in Hong Kong at knishizawa5@bloomberg.net

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

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