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Hong Kong Stocks Rise Most in Five Weeks on China Rates

Hong Kong stocks rose the most in five weeks as China’s benchmark money-market rate tumbled the most since 2011 after the central bank acted to ease a year-end cash crunch.

Agricultural Bank of China Ltd., the nation’s third-biggest lender, increased 1.3 percent. China Unicom (Hong Kong) Ltd. (762), the mainland’s second-largest mobile carrier, gained 1.7 percent after saying it will save 3.14 billion yuan ($517 million) on lower fees to connect to China Mobile Ltd.’s network. Techtronic Industries Co., a power-tool maker that gets 73 percent of sales from North America, climbed 3.4 percent after U.S. consumer spending rose.

The Hang Seng Index gained 1.1 percent to 23,179.55 at the close in Hong Kong, its biggest advance since Nov. 18. All but one stock gained on the 50-member gauge. The Hang Seng China Enterprises Index (HSCEI), also known as the H-share index, added 1.8 percent to 10,834.43. The city’s market is closed for afternoon trading today and reopens Dec. 27.

“China’s central bank gave a signal to investors that the government is acknowledging the problem and is willing to provide liquidity to the market,” said Sam Chi Yung, a strategist at Delta Asia Securities Ltd. in Hong Kong. “But liquidity will remain tight before the year-end.”

The People’s Bank of China conducted the first reverse-repurchase agreements in three weeks today, helping ease the tightest financing conditions since a record cash crunch in June. The seven-day repurchase rate, a gauge of funding availability in the banking system, dropped 339 basis points to 5.55 percent as of 10:14 a.m. in Shanghai, according to the National Interbank Funding Center. It more than doubled to 8.94 percent in the past five days.

A measure of financial companies led gains on the Hang Seng Index. (HSI) Agricultural Bank of China gained 1.3 percent to HK$3.79. Industrial & Commercial Bank of China Ltd., the nation’s largest lender, climbed 1.4 percent to HK$5.26.

Relative Value

The Hang Seng Index climbed 17 percent from its June low on signs China’s economy is stabilizing. The measure traded at 11.03 times estimated earnings, compared with 16.51 for the Standard & Poor’s 500 Index yesterday. The H-share index climbed 22 percent from this year’s low on June 25.

Futures on the S&P 500 fell 0.1 percent today. The equity gauge climbed 0.5 percent yesterday to extend an all-time high as U.S. data showed consumer spending climbed the most in five months in November. A separate report showed the the Thomson Reuters/University of Michigan index of consumer sentiment in December climbed to 82.5 from 75.1 a month earlier. Reports on durable goods orders and new home sales for November will be released today.

Techtronic gained 3.4 percent to HK$21.25. AAC Technologies Holdings Inc. (2018), a maker of acoustic components that gets more than half its revenue from the U.S., rose 4.2 percent to HK$37.60.

Funding Crunch

The H-share index is headed for its biggest monthly drop since June amid a second liquidity crunch in China this year. The gauge last week erased all gains since the country’s leadership announced details of reform measures on Nov. 15 as borrowing costs surged.

China’s liquidity outlook in 2014 isn’t optimistic, and the central bank should “appropriately” cut banks’ reserve requirement ratio one or two times, China Securities Journal reported, citing Bank of China researcher Wen Bin.

China Mobile said effective Jan. 1, the fee China Telecom Corp. and China Unicom pay to connect a call to its network will drop to 0.04 yuan per minute from 0.06 yuan on orders of the government. China Unicom gained 1.7 percent to HK$11.70, while China Telecom jumped 1.8 percent to HK$3.89. China Mobile advanced 0.5 percent to HK$80.95.

Futures on the Hang Seng Index rose 1.2 percent to 23,209. The Hang Seng Volatility Index dropped 0.8 percent to 14.54, indicating traders expect the benchmark equity index to swing 4.2 percent 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: Sarah McDonald at smcdonald23@bloomberg.net

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