HONG KONG, May 29 (Reuters) - Hong Kong stocks edged up on Monday, on which China markets were closed, with mainland property shares aiding the rise on anticipation of strong home demand in smaller Chinese cities.
The blue chip Hang Seng index rose 0.2 percent to 25,701.63 points, the highest close since July 3, 2015. The Hong Kong China Enterprises Index gained 0.4 percent to 10,619.34.
China Evergrande Group Ltd led the surge in mainland property stocks after Morgan Stanley initiated coverage on the developer with "overweight".
The brokerage said it expects Evergrande's gearing to drop to 237 percent by end-2017 from 432 percent at December 2016 on introduction of strategic investors.
The stock, whose share-price has tripled this year, soared nearly 23 percent to a record close of HK$15.20.
Other mainland developers also shot up. Country Garden rose 9.4 percent, Agile Group climbed 5.1 percent and China Resources Land 2.0 percent.
The Hong Kong property sector remained strong with the sub-index rising 1.04 percent, ignoring Hong Kong banks' move over the weekend to increase mortgage rates.
Large commercial banks, including Standard Chartered , HSBC Holdings and Bank of China Hong Kong, said they would raise interest rates following the latest round of mortgage tightening measures by the city's de facto central bank.
Shares of Lianhua Supermarket soared 24.4 percent to their highest close since September 2015 after its shareholder Shanghai Yiguo E-Commerce Co Ltd agreed to sell an 18 percent stake in the supermarket chain operator to a unit of Alibaba Group Holding Ltd.
Hong Kong financial markets will be closed for a holiday on Tuesday. Mainland markets will be closed again, and will reopen on Wednesday.
Reporting by Donny Kwok; Editing by Richard Borsuk