January 4, 2017 / 5:19 AM / 7 months ago

China stocks rise as sentiment improves; Hong Kong slides on strong dollar

3 Min Read

* SSEC 0.4 pct, CSI300 0.4 pct, HSI -0.1 pct

* Liquidity stress eased on the mainland at start of year

* Stronger greenback hurts emerging markets

SHANGHAI, Jan 4 (Reuters) - China stocks extended Tuesday's gains on Wednesday morning as improving money market liquidity and moderating interest rates lifted market sentiment.

Hong Kong stocks edged lower as a strong U.S. dollar weighed, threatening to break a four-day gaining streak if losses aren't pared in the afternoon session.

Both the CSI300 index and the Shanghai Composite Index gained 0.4 percent at the end of the morning session, to 3,356.13 points and 3,148.29 points respectively.

The Hang Seng index dipped after initial momentum faded, down 0.1 percent, to 22,130.30 points, while the Hong Kong China Enterprises Index lost 0.2 percent, to 9,440.26 points.

Analysts say investor confidence on the mainland had been improving generally as trade volumes appeared to rise after the market pulled back in December.

That in part is due to an easing of the liquidity stress that dampened the market in December. Banks, armed with fresh lending quotas, are now more willing to grant loans from the start of the year, said Zhang Qi, analyst at Haitong Securities in Shanghai.

The 14-day repo rate was 2.5 percent, down from a 21-month high of 4.46 percent on Dec 29.

Nearly all sectors advanced by midday, but real estate stocks retreated modestly on fears of new restrictions on home buying in the overheated property market.

Hong Kong took little encouragement from the mainland. A stronger U.S. dollar has left Hong Kong stocks vulnerable to a potential rotation out of emerging markets to the United States.

The dollar index, a measure of the greenback's value against six major currencies, climbed to 14-year intraday high overnight.

Sector performance was mixed, with gains in telecommunications and industrial stocks offset by losses in resource shares.

Declines in oil prices hit the share prices of energy majors . U.S. crude futures retreated nearly 1.7 percent at the lunch break after hitting an 17-1/2-month high in the previous session.

Reporting by Jackie Cai and John Ruwitch; Editing by Eric Meijer

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