China shares rise, oil companies lead Hong Kong higher

(Updates to close)

* Hang Seng gain 2 pct, Shanghai Composite up 1.5 pct

* Oil giants lead gains on higher oil prices

* Defensives remain popular in HK despite high valuations

* Shanghai recovers from lowest close in 13 months

By Clement Tan and Yixin Chen

HONG KONG/SHANGHAI, Aug 23 (Reuters) - Hong Kong shares gained for a second session on Tuesday as oil stocks surged on higher crude prices, but low volumes and investors selling into the rally suggest jitters remain.

The markets also took comfort from HSBC's China flash PMI reading, released midway through morning trade, which edged up to 49.8 in August from July's final reading of 49.3 , after vague rumours earlier of a lower number, traders said.

Strong gains in defensive plays despite relatively high valuations hinted lingering caution in a fragile market bereft of positive cues after being battered by global growth fears for the last three weeks.

"I wouldn't chase this rally too aggressively," said Alex Wong, director of asset management at Ample Finance Group. "There is limited upside with the outlook still not looking too good at this point."

The Hang Seng Index finished up 2 percent at 19,875.5 points with Chinese companies listed in Hong Kong outperforming and helping the China Enterprises Index jump 3.3 percent.

Chinese oil giants, CNOOC Ltd , China Petroleum & Chemical Corp (Sinopec) and PetroChina Co Ltd , led the jump with strong volumes although broader turnover declined for the first time in five sessions, finishing about 6 percent below its 20-day average.

Power Assets Holdings Ltd gained 3.8 percent in decent volume despite trading at 14 times forward 12-month earnings, 21 percent above its historical median, according to Thomson Reuters Starmine.

Investors also hammered companies that reported weak first-half earnings. Instant noodle and beverage maker Tingyi (Cayman Islands) Holdings Corp sank 8.5 percent after it said it expected to see pressure from rising costs continue for the year. .

Warren Buffett-backed Chinese automaker, BYD Co Ltd plunged more than 14 percent to its lowest since April 2009 after the company warned it could post a third-quarter loss, triggering a raft of analyst downgrades.

IT, PROPERTY LIFT MAINLAND SHARES

The Shanghai Composite Index gained 1.5 percent to 2,554.0 points, supported by strength in property and information technology-related shares as low A-share turnover that was more than 20 percent below its 20-day average.

The China Securities Journal said on Tuesday that China could unveil its 12th five-year plan for the information technology industry in September and might invest around 500 billion yuan in the sector.

Information technology firm, Xiamen Xindeco jumped its 10 percent daily limit, while Fujian Newland Computer rose 6.6 percent.

Battered property names rebounded, with the Shanghai property sub-index rising 2.6 percent. The index lost nearly 4 percent in the last three sessions after Beijing announced details of an extension of home purchase curbs aimed at controlling surging prices.

"The property sector has already priced in those tightening factors," said Cheng Yi, a senior analyst at Xiangcai Securities in Shanghai. "Big realtors have their ways to manage the control policies."

Analysts said investor confidence improved on Tuesday after China kept the yield of its one-year bills unchanged at auction, relieving market jitters over an imminent official interest rate increase.

"The valuations in the market are still very low, so in times of big declines, long-term value investors will emerge," Cheng said. (Editing by Ramya Venugopal)