January 3, 2017 / 4:42 AM / 9 months ago

China stocks start 2017 firmer, liquidity stress fades; HK up

* SSEC 0.7 pct, CSI300 0.7 pct, HSI 0.5 pct

* Mainland PMI posts solid performance

* Liquidity stress eases as 2017 starts

SHANGHAI, Jan 3 (Reuters) - China stocks started the first trading day of 2017 on a solid footing, as concerns of a liquidity crunch faded and data showed more signs of the economy stabilising.

Hong Kong shares also gained, reversing initial losses, with support from the mainland outweighing the bearish influence from a stronger U.S. currency.

Both the CSI300 index and the Shanghai Composite Index gained 0.7 percent at the end of the morning session, to 3,333.16 points and 3,125.56 points, respectively.

The CSI300 index ended 2016 with an 11.3 percent loss - its worst performance for five years.

Both the Hang Seng index and the Hong Kong China Enterprises Index gained 0.5 percent, to 22,108.84 points and 9,441.66 points, respectively.

Investors on the mainland welcomed a private business survey showing China’s factory activity picked up more than expected in December as demand accelerated, with output reaching a near six-year high.

In addition, an official factory survey on Sunday showed activity in the sector expanded for a fifth month in December, but it slowed more than expected as Beijing’ effort to curb asset prices has begune to weigh on the broader economy.

The market was buoyed by banks being more willing to lend due to the better liquidity situation at the start of the year, according to Tian Weidong, analyst at Kaiyuan Securities. “But it’s still too early to tell if the momentum would be sustainable, since the trade volume remains low.”

Tian said solid manufacturing data had some influence on sentiment, without altering the market’s trend.

“The data will hold for at least two or three months and people have expectations for that,” he said, noting that the data was in part supported by early gains in the commodity sector, generally viewed as a leading economic indicator.

Concerned over capital outflows weakening the yuan, China’s foreign exchange regulator said late on Saturday that it was stepping up scrutiny on individual foreign currency purchases and would strengthen punishment for illegal money outflows.

Nearly all sectors gained, with consumer discretionary sector the strongest performer, rising more than 1 percent by the lunch break.

Sector performance was mixed, with strength among property stocks countered by weakness in the services sector .

Reporting by Jackie Cai and John Ruwitch; Editing by Simon Cameron-Moore

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