HSBC's HK shares jump on China investment talk and Citi

By Parvathy Ullatil

HONG KONG (Reuters) - Shares in HSBC Holdings (0005.HK) jumped over 4 percent in Hong Kong on Monday after a UK newspaper reported that Europe's largest lender had discussed a potential investment by China's sovereign wealth fund.

Shares in HSBC (HSBA.L) began the afternoon session up 4 percent, extending a two-day, 7-percent rally and heading toward its biggest single-day gain since March.

The Sunday Telegraph said bank chairman Stephen Green had met officials from the China Investment Corporation several times in recent months, discussing among other things the possibility of the fund buying HSBC's shares on the open market.

But analysts said HSBC was also reacting to short-covering in Hong Kong after Citigroup (C.N) joined JP Morgan (JPM.N) and Wells Fargo (WFC.N) in reporting smaller-than-expected losses for the first half, calming credit market worries.

Others were sceptical about CIC's reported interest in HSBC, given ongoing turmoil in financial markets and its less-than-stellar track record abroad.

"The report is complete nonsense," said a financial analyst with Haitong Securities in Shanghai

"It doesn't make sense for CIC to invest in overseas financial institutions when nobody knows where the bottom of the credit crisis could be," the analyst said.

"Regulators have repeatedly warned Chinese financial firms to pay extreme attention to the uncertainties of overseas markets.