HONG KONG (Nikkei Markets) -- Hong Kong shares logged their best week in more than two months, helped by the withdrawal of a controversial piece of legislation and hopes for a Sino-American trade deal.
The Hang Seng Index added 0.7% to 26,690.76 on Friday, taking its advance since Aug. 30 to 3.8% -- the strongest weekly performance since the period that ended on June 21. This week's gains were underpinned by a rally on Wednesday, following media reports that the Hong Kong government planned to formally withdraw its proposed extradition bill, which has sparked months of unrest in the territory due to fears it would allow people to be extradited to places including mainland China to stand trial.
Hong Kong Chief Executive Carrie Lam late on Wednesday formally announced the legislation would be pulled. Still, the withdrawal only meets one of the five demands of protesters and the city is bracing for another weekend of demonstrations after some pro-democracy activists described the government's action as being "too little, too late."
Mobile components maker AAC Technologies Holdings and pork producer WH Group were the two biggest advancers on the 50-stock gauge, climbing 18.7% and 10.5%, respectively. On Friday, they added 2.9% and 2.4%, respectively.
Stocks were also spurred by optimism over more monetary policy support on the mainland, and expectations for a trade deal as Chinese and American officials agreed to resume negotiations next month.
U.S. equities rose overnight after China's Ministry of Commerce said that American and Chinese officials would meet in Washington in early October to discuss bilateral trade -- the first face-to-face meeting between high-level officials since July.
Trade tensions with China escalated after U.S. President Donald Trump announced plans in August to impose fresh tariffs that would cover virtually all goods imported from the mainland. Those tariffs took effect on some goods from Sept. 1, leading to a set of retaliatory levies by China. Deputy-level meetings will reportedly take place in mid-September, ahead of the talks in October.
"We need to wait until October for trade talks to resume, so investors will look at the development of the local situation in the coming few days," said Andrew Wong, chairman and chief executive at Anli Securities. "We need to see if the government will display more goodwill. People may see the withdrawal as a short-term appeasement."
If Hong Kong protests turn violent again, the Hang Seng Index will likely slip below 26,000 points, he added.
Fitch Ratings on Friday downgraded Hong Kong's long-term foreign-currency issuer default rating to "AA" from "AA+" because of continued unrest in the city, as well as external headwinds brought on by the trade conflict.
Bourse operator Hong Kong Exchanges & Clearing gained 0.9% in Hong Kong on Friday, as trading in its derivatives market resumed after being suspended on Thursday afternoon because of a software glitch. The malfunction has been caused by a software bug, with the exchange operator now using an older version of the software program, according to Chief Executive Charles Li.
Telecommunications equipment maker ZTE surged 8.5%. Italy's government on Thursday approved its use of special powers in supply deals for fifth-generation telecom services by a number of domestic companies with providers including ZTE, Reuters reported.
On the mainland, the Shanghai Composite Index rose 0.5% while the yuan strengthened 0.4% against the dollar to 7.1202.
Dongfeng Motor Group added 1.8% in Hong Kong following a 2.7% increase in its total sales volumes for August. France's PSA Group, the maker of Peugeot cars, and its Chinese partner Dongfeng have come up with a plan to restructure their joint venture operations, including cutting costs and boosting production, Reuters reported.
China Gas Holdings slumped 7% following reports that a unit of diversified South Korean conglomerate SK Holdings had cut its stake in the company.
China SCE Group Holdings, which reported a 47% year-on-year increase in August sales, advanced 1.3%.
Clothing retailer Bossini International Holdings declined 2.7% after forecasting a loss of about HK$139 million ($17.7 million) for the year ended in June, compared with a loss of HK$29 million the previous year.
-- Benny Kung