HK shares extend rise to midday, led by HSBC,banks

* HSBC, financials lead market rally on U.S. aid bill

* Turnover thin as small deals drive technical rebound
(Updates to midday)

By Nerilyn Tenorio

HONG KONG, Jan 29 (Reuters) - Hong Kong shares ended the
morning 5.5 percent higher on Thursday as small dealers kept the
momentum up in financials on hopes the U.S. Congress-approved
$825 billion stimulus package would help avert a deeper
recession.

Index heavyweight and Europe's biggest lender HSBC (0005.HK)
rallied 8.6 percent, largely fuelling the Hong Kong benchmark
index's advance.

Other blue chip financials rose, with sentiment buoyed by the
U.S. government's plan to create a government "bad bank" to
absorb toxic assets [ID:nLSI502891].

"Hong Kong reopened after a three-day break and saw a good
rebound, largely following gains in the U.S. and Europe," said
Linus Yip, strategist at First Shanghai Securities.

The Hang Seng Index .HSI rose 688.17 points to 13,266.77
points.

Mainboard turnover grew to HK$23 billion from midday Friday's
nearly HK$19 billion.

But Yip warned the market's gains may not be sustained for
long, saying big investors had not yet returned from the
holidays.

"The day's high may have already been reached. The gains so
far are probably just driven by technical factors," he said.
HSBC's rise to HK$62.4 by midday was in line with Wednesday's
rally on Wall Street, where Bank of America (BAC.N) climbed
nearly 14 percent and Citigroup (C.N) shot up more than 18
percent on optimism the Obama administration was making progress
on a plan to relieve banks of money-losing assets.

Merrill Lynch's rating HSBC Holdings a 'buy' at HK$60 a share
also helped propel the stock higher.

The China Enterprises Index .HSCE of top locally listed
mainland firms had gained 6.5 percent to 7,097.58 points.

China's biggest lender ICBC (1398.HK) jumped 5.6 percent,
China Construction Bank (0939.HK) soared 6.8 percent, Bank of
China (2388.HK) climbed 5.5 percent and China Life (2628.HK)
rallied 6.8 percent.

Oil companies advanced, although oil prices edged down on
Thursday after gaining the previous day when U.S. government data
showed draws in distillate and gasoline inventories and OPEC
vowed to fully implement steep supply cuts by the end of the
month.

Sinopec (0386.HK) rose 5.7 percent, while CNOOC (0883.HK)
climbed 5.4 percent and Petrochina (0857.HK) jumped 6 percent.

Major property developer Sun Hung Kai Properties (0016.HK)
gained nearly 5 percent following a newspaper report that the
company was expected speed up efforts to sell new residential
units this year while tightening control of construction costs.
(Reporting by Nerilyn Tenorio; Editing by Jonathan Hopfner)