SHANGHAI: China stocks rallied on Thursday, with the blue chip index hitting a near a two-and-half-year high, boosted by more government spending to prop up the economy.
Hong Kong shares also gained after a security law went into effect in the city this week but did not rattle investor confidence as feared.
At the end of the morning session, the CSI300 index rose 1.2%, to 4,297.49 points, its highest since Jan. 30, 2018, while the Shanghai Composite Index gained 1.2%, to 3,061.10 points.
Leading the gains, the CSI300 real estate index and the CSI300 consumer staples index climbed 2.6% and 2.4%, respectively.
China's finance ministry has said it is planning to sell more special treasury bonds to fund public health-related infrastructure facilities and aid a virus-hit economy, part of a proposal to issue 1 trillion yuan in such bonds this year.
Market sentiment has turned more upbeat on signs China's economy is gradually emerging from a sharp contraction in the first quarter. Factory activity grew at a faster clip in June after the government lifted coronavirus lockdown measures and ramped up support steps, a private business survey showed on Wednesday.
Beijing unveiled the security law on Tuesday, and Hong Kong police made their first arrests of protesters under the legislation on Wednesday.
The more pressure from external sanctions, the more smooth Beijing's internal policy hedging will be, analysts at Everbright Securities said in report.
The U.S. House of Representatives passed legislation on Wednesday that would penalise banks doing business with Chinese officials who implement a national security law that House Speaker Nancy Pelosi called a "brutal, sweeping crackdown" on Hong Kong.
But Hong Kong shares gained as investors see the law leading to more listings by Chinese companies, more mainland money, and more financial links with the world's second-biggest economy, traders and analysts said, despite legislation some fear will erode the city's freedoms.
The Hang Seng index added 1.5%, to 24,788.46 points, while the Hong Kong China Enterprises Index gained 1.8%, to 9,931.03.
The Hong Kong stock market was closed for the Hong Kong Special Administrative Region Establishment Day on Wednesday.
Washington's moves to revoke Hong Kong's special treatment under U.S. law will have limited impact, most analysts say, while closer economic ties with China will benefit the city.
"Markets will continue to shrug this off. They are entirely amoral and don't care about issues like this, most so when central banks are giving everyone a free put option," said Michael Every, head of financial markets research Asia-Pacific at Rabobank. - Reuters
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