November 2, 2018 / 7:58 AM / 16 days ago

China shares surge as Trump reportedly seeking China trade deal

* CSI300 index +3.6 pct, Shanghai Composite +2.7 pct

* Trump said to want trade agreement with Xi at G20

* Domestic investors cheer Xi support pledge for private firms

By Andrew Galbraith and Noah Sin

SHANGHAI/HONG KONG, Nov 2 (Reuters) - Shares in China shot higher on Friday, propelled by a report that U.S. President Donald Trump is seeking a trade agreement with Chinese President Xi Jinping, and as investors cheered a new pledge of government support for private businesses.

At the close, the blue-chip CSI300 index was 3.56 percent higher at 3,290.25 points, taking gains for the week to 3.67 percent. The Shanghai Composite index ended 2.7 percent higher at 2,676.48 points, and was up 2.99 percent for the week.

Despite the sizable gains, however, both indexes remain far below their levels at the end of 2017. The CSI300 has lost 18.37 percent this year and the Shanghai Composite is down 19.07 percent, underscoring worries about the impact of the Sino-U.S. trade row on corporate profits and overall economic growth.

Consumer staples firms posted particularly strong gains, rising 6.23 percent for the day. Distiller Kweichow Moutai Co gained 6.55 percent on Friday after a string of volatile sessions that left it down 1.7 percent for the week.

The financial sector sub-index added 2.65 percent, real estate firms rose 0.41 percent and the healthcare sub-index closed 5.28 percent higher.

The smaller Shenzhen index ended up 3.43 percent and the start-up board ChiNext Composite index rose 4.82 percent, with smaller enterprises getting a boost from a promise of private sector support from Xi, who pledged more tax cuts and financial aid.

“This is part of a series of encouragements coming through from the government,” said Zhang Qi, an analyst at Haitong Securities in Shanghai, referring to policy support announced by regulators, such as enhanced market liquidity, earlier this week.

Shares had booked solid gains across the board in the morning session, and rallied even harder after the midday break on a Bloomberg report that Trump is interested in reaching a trade agreement with Xi at the G20 summit in Argentina later this month, and has asked key U.S. officials to begin drafting potential terms.

The report came after the two leaders expressed optimism about resolving their trade disputes following a phone call. Uncertainty over global trade has been one of the major factors behind the recent equity market rout, with recent economic data pointing to a deepening global impact from the trade war.

“Trump’s announcement of positive trade war developments comes just days before the midterm elections, and its momentous impact reveals the delicate state of investor sentiment,” said Robert Olivar, partner at O&G Capital Management in Shanghai.

Easing trade tensions pushed the offshore yuan to 6.8955 per dollar in afternoon trade, the first time it has traded at a level stronger than 6.90 to the dollar since Oct. 12.

At 0716 GMT, the offshore yuan was trading at 6.8848 per dollar.

The onshore yuan touched 6.9083 per dollar, and was changing hands at 6.8889 per dollar at 0716 GMT, 1.3 percent stronger than a 10-year low it hit earlier this week. The currency was on track for its first weekly gain in six weeks.

Chinese government bond futures fell on the encouraging trade news. The 10-year Treasury bonds for December delivery , the most traded contract, were 0.47 percent lower at 95.500.

In Hong Kong, the Hang Seng Index was 3.75 percent higher, which would be its biggest daily gain since Sept. 9, 2015. Chinese H-shares listed in Hong Kong climbed 3.65 percent.

Around the region, MSCI’s Asia ex-Japan stock index was firmer by 2.85 percent, while Japan’s Nikkei index closed up 2.56 percent.

“We have had a lot of negative headlines for a long time, with the trade war going on and the renminbi weakening,” said Zhang at Haitong Securities.

With both these factors turning around, “confidence is on the rise in China.” (Reporting by Andrew Galbraith and Noah Sin Editing by Shri Navaratnam)

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