Hong Kong Stocks Rise the Most in 3 Weeks; Merchants Bank Gains

By Ian C. Sayson and Iris Leung

July 7 (Bloomberg) -- Hong Kong stocks rose the most in three weeks, led by China's lenders, after China Merchants Bank Co. and China Citic Bank Corp. forecast higher earnings.

New World Development Ltd. led a climb among builders as some investors judged a two-week sell off in real estate stocks as excessive. China Power International Development Ltd., the unit of the nation's fifth-largest Chinese electricity producer, advanced after saying first-half output rose.

``Chinese banks will have assured earnings growth for the first-half and the third quarter,'' said Mona Chung, a Hong Kong- based fund manager at Daiwa Asset Management Ltd., which oversees more than $2 billion. ``Property stocks were oversold and their valuation has now come to a more reasonable level.''

The Hang Seng Index added 346.53, or 1.6 percent, to 21,770.35 at 12:07 p.m. local time, with six stocks advancing for each that dropped. The measure has gained 2.5 percent the past two days since closing at a 15-week low. The gauge is heading for its biggest gain since June 16.

The Hang Seng China Enterprises Index, which tracks so- called H shares of mainland Chinese companies, climbed 2.8 percent to 11,544.39.

China Merchants Bank, the nation's most profitable lender, jumped 6.1 percent to HK$24.25. First-half net income may have more than doubled as the company extended more loans. China Citic, the banking unit of the nation's largest investment firm, gained 3.5 percent to HK$4.43, set for its biggest gain since May 28.

``Loan growth will provide banks with upside,'' said Henry Chan, Hong Kong-based head of Asian investments at Baring Asset Management (Asia) Ltd., which manages more than $10 billion of equities.

Property Stocks Rebound

The Hang Seng Property Index gained 4.3 percent to 25,997.80. The measure had lost 10 percent in the previous two weeks, sending its 14-day relative strength index, which shows how rapidly prices have advanced or dropped in that period, to 22. Some investors use readings below 30 as a signal to buy.

New World Development jumped 4.8 percent to HK$15.16, on course for its biggest gain since May 2. Sino Land Co. increased 3.9 percent to HK$14.84, after posting its fifth straight weekly slump. Sun Hung Kai Properties Ltd., Hong Kong's largest developer by market value, gained 5.1 percent to HK$110.20.

China Power International, the unit of the nation's fifth- largest Chinese electricity producer, advanced 2.9 percent to HK$2.15, set for its biggest gain since June 18. The company said it boosted electricity output in the first half of 2008 by 37 percent to 16.9 million megawatt-hours from a year ago.

To contact the reporter on this story: Ian C. Sayson in Manila at isayson@bloomberg.net; Iris Leung in Hong Kong at Ileung7@bloomberg.net;