October 4, 2017 / 4:11 AM / a year ago

Hong Kong-listed China shares hit two-year high, led by banks

(Add brokerages comment, update stocks prices)

By Donny Kwok

HONG KONG, Oct 4 (Reuters) - Hong Kong-listed mainland stocks jumped nearly 2 percent to their highest level in more than two years on Wednesday, extending gains from the previous session, with major banks leading the surge after China’s central bank cut reserve ratios.

The Chinese Enterprises Index climbed to as high as 11,514.82 points in early trade, its highest level since Aug. 11, 2015, before paring some of its gains.

It was up around 1 percent just before noon, after soaring 3.6 percent in the previous session.

The blue-chip Hang Seng index climbed 0.7 percent to 2,8338.66.

China’s central bank on Saturday cut the amount of cash that some banks must hold as reserves for the first time since February 2016 in a bid to encourage more lending to struggling smaller firms.

Analysts said the reduction in the reserve requirement ratio (RRR) should support banks’ net interest margins and profit growth in 2018, while ensuring that liquidity in the broader economy will remain ample if Beijing continues its clampdown on riskier forms of financing.

The private sector accounts for about 60 percent of overall investment in China and about a third of all its jobs, rising to as much as 90 percent in urban areas.

“In our view, the targeted RRR cut is aimed to provide more support to micro-and-small enterprises,” Bank of America Merrill Lynch wrote in a research note.

“Given the expanded coverage and lower thresholds, we believe the new targeted RRR cut will benefit more banks than before.”

Shares of China state-controlled bank goliaths, including Bank of Communications, rose more then 2 percent in early trade, while ICBC and China Construction Bank gained more than 1 percent.

“The RRR cut should support short-term financial stability and economic growth by stabilising liquidity conditions and delaying the cooling of the property market, posing upside risks to our 2018 growth forecast,” Nomura wrote in a research note.

Chinese insurers also galvanised the rally with New China Life Insurance, Ping An and China Life up more than 2 percent. (Reporting by Donny Kwok; Editing by Sam Holmes and Kim Coghill)

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