Hong Kong shares rebounded 2.8 percent on Wednesday, recovering from the previous session's steep fall, after the US Fed said it may keep open a lifeline for Wall Street banks battered by the credit crisis.
The Hang Seng Index trimmed gains in early afternoon trade as reports that Iran had test-fired missiles rattled investors, but the sudden pullback brought more bargain hunters into the market towards the end of the session. Shares in Europe's largest bank, HSBC Holdings, rose 2.9 percent in their biggest jump in more than three months, jumped the most in more than three months to rise 2.9 percent, leading gains on the main index.
Top insurer China Life, the most heavily traded stock of the day, surged nearly 6 percent, boosted by improved analyst forecasts on the Shanghai market in the near term.
The Shanghai Composite Index rose 3.8 percent to 2920.546 on Wednesday. "There is talk that the Shanghai Composite Index may hit 3500 ahead of the Beijing Olympics next month and if the China markets start moving in that direction, it's very likley the HSI will rally up to 25,000 in the short term," said Peter Lai, director with DBs Vickers.
China Overseas Land & Investment was the biggest percent gainer on the main index, surging 10 percent on talk that Beijing policy makers may ease their aggressive credit tightening stance to support growth. The Hang Seng Index closed up 585 points at 21,805.81 in a broad-based rally, after losing 3.2 percent on Tuesday.
Mainboard turnover rose to HK$74.55 billion ($9.55 billion) from HK$63.74 billion on Tuesday. The China Enterprises Index of top locally listed Chinese firms outperformed with a 4.8 percent gain, led by financials.
Chinese banks resumed their rally on positive first-half earnings estimates from three lenders over the past few days and after analysts said selling in banking shares had been overdone.
Lenders had snapped their rally on Tuesday, falling in line with the broad market. China's biggest bank, ICBC, jumped 5.1 percent, China Construction Bank, the most heavily weighted mainland bank on the Hang Seng Index, surged 4.9 percent and China Merchants Bank gained 5.4 percent. Retreating oil prices sent airline shares soaring earlier in the session but gains were pared as oil jumped $2 per barrel on mounting tension in the Middle East. Cathay Pacific gained 4.9 percent and Air China surged 5.4 percent. China Southern Airlines jumped 5.9 percent, while smaller rival China Eastern gained 5 percent.
Another bright spot was Yanzhou Coal, which rallied 7.7 percent on reports that Beijing had put a tax reform proposal that may result in a higher levy on hold for at least three months amid worries over rising inflation.
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