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Hong Kong Stocks Erase Weekly Fall as Lenders Climb on EU

July 5 (Bloomberg) -- Hong Kong stocks advanced, with the benchmark equity index capping the biggest two-day gain in almost a year, as financial companies rallied after European policy makers pledged to keep borrowing costs low for longer.

HSBC Holdings Plc, Europe’s biggest bank, rose 2.7 percent. Industrial & Commercial Bank of China Ltd., the world’s largest lender, gained 3.2 percent after shareholder Temasek Holdings Pte said it’s not concerned by a mainland cash crunch. Hang Lung Properties Ltd. added 4.1 percent after the city said it will build more than 60,000 homes to help curb real-estate prices. China Rongsheng Heavy Industries Group Holdings Ltd. plunged to a record low after the shipbuilder said it was seeking government support amid falling prices and a glut in vessel supply.

The Hang Seng Index gained 1.9 percent to 20,854.67 at the close, rising 0.3 percent on the week and posting its biggest two-day gain since July 30, 2012. Five of the 50 companies of the gauge declined. The Hang Seng China Enterprises Index, down more than 20 percent from the year’s high, added 2.1 percent to 9,209.34.

“After the European Central Bank meeting where they said they’d expand easing monetary policy, Hong Kong has had a good start today,” said Linus Yip, chief strategist at First Shanghai Securities in Hong Kong. “Overall, the liquidity problem in mainland China is under control.”

A gauge of banks and insurers advanced the most among the the Hang Seng Index’s industry groups. China’s State Council today pledged to maintain a reasonable supply of credit to the economy after a cash crunch last month sent interbank borrowing rates to the highest on record.

Temasek Bullish

Lenders also gained after Temasek, the biggest foreign investor in Chinese banks, said it plans to increase mainland assets. ICBC rose 3.2 percent to HK$4.82. China Construction Bank Corp., the country’s second-biggest lender, gained 2.3 percent to HK$5.36.

The Hang Seng Index posted its biggest monthly decline in a year last month, falling 7.1 percent as China’s money-market rates surged to record and after Federal Reserve 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 9.9 times estimated earnings, 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.

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 25 percent below its Feb. 1 high yesterday, meeting some investors’ definition of a bear market. The measure trades for 1.11 times the value of net assets, near levels not seen since the depths of the 2008 global financial crisis.

China Slowdown

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

European Central Bank President Mario Draghi yesterday pledged to keep interest rates at a record low for an “extended period,” while Bank of England chief Mark Carney said increases in market rates weren’t warranted.

Lenders linked to Europe advanced. HSBC added 2.7 percent to HK$83.25. Standard Chartered Plc, based in Britain, rose 3.1 percent to HK$175.40.

Reports this week showed industrial expansion in manufacturing and services is losing pace as the government seeks to redirect the economy away from dependence on exports. The People’s Bank of China and the China Banking Regulatory Commission held a press briefing today where the vowed to maintain a prudent approach to monetary policy.

Growth Outlook

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

Hong Kong developers advanced after they city said it will sell land and build public housing in the city’s Fan Ling North and Kwu Tung North areas, part of a plan to help curb prices in the world’s most-expensive housing market.

Hang Lung surged 4.1 percent to HK$26.50. New World Development Co., a builder controlled by billionaire Cheng Yu-tung, rose 2.7 percent to HK$10.66. Henderson Land Development Co., the Hong Kong builder controlled by billionaire Lee Shau-kee, added 4.9 percent to HK$47.40.

China Shenhua Energy Co., the nation’s biggest coal miner by market value, gained 6.7 percent to HK$20.50. The shares have underperformed its power and railway peers since the third quarter, Barclay’s said, maintaining its overweight rating.

Shipping Glut

China Rongsheng slumped 16 percent to a record-low 89 Hong Kong cents. The shipyard today sought state aid after reporting a first-half loss and dropping about HK$1.8 billion ($232 million) in market value since July 3. China, the world’s biggest shipbuilder, may see a third of its yards shut in five years amid a global vessel glut, according to the China Association of National Shipbuilding Industry.

Futures on the S&P 500 Index increased 1 percent. U.S. markets were closed yesterday for the July 4 holiday. The unemployment rate probably fell to 7.5 percent in June, matching April’s four-year low and down from 7.6 percent in May, according to the median of 82 economists’ estimates in a Bloomberg survey before the Labor Department report today.

Hang Seng Index futures climbed 1.9 percent to 20,799. The HSI Volatility Index dropped 1 percent to 22.90, indicating traders expect a swing of 6.6 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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