Hong Kong shares post biggest gain in 5 months

* HSI posts biggest gain since March 25

* Advancing stocks beat decliners 483 to 263

* Steel stocks tumble on broker downgrade, Baosteel price cut

(Updates to close)

By Parvathy Ullatil

HONG KONG, Aug 25 (Reuters) - Hong Kong shares posted their biggest single-day jump in five months on Monday, rising 3.5 percent as most blue chips rebounded following a Wall Street rally.

Though spurred by bargain hunting and short covering, market watchers expect the rally in local shares to stretch a bit further as it follows a 10.3 percent drop on the main index in less than a month.

Local shares slipped 2.6 percent on Thursday on fading hopes for the imminent launch of a stimulus plan from China as well as caution ahead of the typhoon-triggered holiday on Friday.

Bucking the broad market trend, shares in Maanshan Iron & Steel tumbled 7.8 percent on Monday after Goldman Sachs cut the stock to sell from buy on concern that steel demand will fall further amid a slowdown in property construction.

Earlier on Monday trade sources said China's Baoshan Iron & Steel 6000019.SS, the listed arm of the country's biggest steel mill, had cut fourth quarter sales prices for cold-rolled steel products as the demand outlook weakens in China's key auto and home appliances sector.
Bigger rival Angang Steel O347.HK also slipped 0.8 percent on a similar cut in its rating by Goldman.

The benchmark Hang Seng Index .HSI closed 712.73 points higher at 21,104.79 after opening up 1.7 percent.

"The Hang Seng Index may bounce back to 22,000 in the short term, though nothing has changed fundamentally. It fell too much too fast," said Ben Kwong, chief operating officer with KGI Asia.

Mainboard turnover was almost unchanged at HK$55.6 billion ($7.1 billion) from HK$55.7 billion on Thursday.

Index heavyweights anchored gains on the HSI with HSBC Holdings , rising 3.1 percent and China Mobile climbing 3.6 percent.

The China Enterprises Index .HSCE of top locally listed mainland Chinese firms rallied 3.7 percent.

China's second largest lender, China Construction Bank, shot up 3.7 percent after announcing a 71 percent growth in profit, in line with analyst expectations.

HSBC upgraded the stock to neutral from underweight on Monday, following the recent decline in its share price. Shares in CCB have slipped more than 13 percent this month as worries over inflation and slowing growth in China weighed down the banking sector.

Shares in the nation's largest bank, ICBC, rallied 4.3 percent after the lender posted a 41 percent increase in net profit in the second quarter.

Asia's largest refiner, Sinopec Corp , rose 3 percent, helped by retreating crude oil prices and growing speculation that Beijing may hike prices of petroleum products for the second time this year.

Chinese refiners have suffered losses this year, squeezed between rising international crude oil prices and regulated prices of refined products in the mainland.

Petrochina , which also stands to gain from higher domestic fuel prices, jumped 3.1 percent.

Shares in Yanzhou Coal Mining soared 5.8 percent after the coal miner said on Sunday its net income jumped 160 percent in the first half of 2008 on high coal prices.

China Shenhua Energy , the world's most valuable coal miner, surged 5.4 percent while smaller rival China Coal Energy gained 6.4 percent.

Shares in offshore oil producer CNOOC advanced 4.3 percent despite a continued correction in global crude oil prices as investors concentrated on the company's first-half earnings due on Wednesday.

CNOOC, an upstream pure play, is expected to post strong net profit growth in the first six months, helped by the record-setting surge in crude oil prices and increased demand.

Billionaire Li Ka-shing's flagship conglomerate Hutchison Whampoa rallied 2.9 percent following a series of target price upgrades and increased earnings estimates from major brokerages.

On Thursday, the company beat analyst estimates, nearly tripling its underlying profit in the first half, thanks to a strong showing at its Canadian unit Husky Energy and improved third-generation (3G) network business.

The stock ended 1.3 percent lower on Thursday following a sell-off in the broad market ahead of Friday's typhoon holiday.

Li's property major Cheung Kong Holdings surged 3.7 percent after posting a smaller-than-expected decline in first half net profit on Thursday.

Hong Kong's largest air carrier, Cathay Pacific Airways climbed 5.2 percent as crude oil prices continued to slide on Monday after posting their biggest drop since December 2004 on Friday.

Top insurer China Life rallied 3.2 percent while China Unicom , the nation's second largest wireless service carrier gained 4.4 percent. Both companies are due to announce their first-half earnings later today.

China Netcom , the nation's second-largest fixed-line service provider, put on 4.2 percent. The company, which is set to be merged with China Unicom, announced a 5.2 percent decline in first half earnings on Monday.

($1=6.833 Yuan)

($1=7.805 Hong Kong Dollar)

(Reporting by Parvathy Ullatil; Editing by Ken Wills)