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Cathay, developers help Hong Kong shares start June on positive note

HONG KONG (Nikkei Markets) -- Hong Kong shares resumed gains Thursday, led by Cathay Pacific Airways and developers, as markets shrugged off a private survey that showed a contraction in China's factory activity last month.

The Hang Seng Index rose 0.4% to 25,749.34 by midday. The gauge slipped 0.2% Wednesday, but capped a fifth consecutive monthly gain amid lingering investor optimism. Cathay Pacific advanced 2.8% after Kingboard Chemical said it bought 37.8 million shares in the airline, boosting its stake to 7.53%. Local developers advanced after real estate company Nan Fung Development paid HK$24.6 billion ($3.2 billion) for a commercial plot, a record in the city. Sun Hung Kai Properties added 1.9% and Henderson Land Development rose 1.2%. A drop in 10-year U.S. Treasury yields to six-week lows also helped support developers.

Shares in the city were headed for their eighth gain in nine sessions even as mainland markets declined after the Caixin/Markit Manufacturing Purchasing Managers' index fell to 49.6 last month to its lowest reading in almost a year, from 50.3 in April. A reading below 50 indicates a contraction in activity. The Shanghai Composite fell 0.5%.

"Everything looks positive for Hong Kong right now and the lack of fear is apparent as negative news is simply brushed off," said Ben Kwong, executive director at KGI Asia. "A part of the rally in recent sessions may also be down to hopes of inclusion of A-shares in the MSCI indexes."

Index provider MSCI will announce on June 20 whether it will include China's domestic-listed shares in its global indexes, which are tracked by fund managers with hundreds of billions of dollars in assets.

The yuan traded in China rose 0.3% to 6.7894 against the dollar, poised for six-month highs, while the currency traded offshore in Hong Kong added 0.2% to 6.7323 to seven-month highs. The offshore yuan had jumped more than 1% on Wednesday for its best performance in five months, as the overnight cost of borrowing the currency topped 21%. The jump makes it more expensive to bet against the currency. The onshore traded yuan advanced 0.6% in the previous session.

The yuan's gains came after the country's central bank said last week that it will tweak the way it calculates the daily fixing by introducing what it called the "counter-cyclical adjustment factor." The yuan's mid-point was set at 6.8090 on Thursday as against 6.8633 the previous day. The currency can move 2% in either direction from that level on a given day.

Shanghai Fosun Pharmaceutical Group advanced 1.7% to HK$30.35 after its controlling shareholder Fosun International on Wednesday acquired 500,000 of the company's H-shares at HK$29.78 apiece.

Fosun International rose 1.2%. The conglomerate said a consortium, in which it has a 37% interest, acquired a 10% stake in Russia-listed Polyus for $887 million. Shares of Zhaojin Mining Industry, which has a 12% interest in the consortium, advanced 1.4%. The miner said it is considering whether to participate in the acquisition.

Tencent Holdings rose 1.3%. Zhong An Online Property and Casualty Insurance, in which Tencent and Alibaba Group Holding affiliate Ant Financial are shareholders, has resumed plans to raise $1 billion or more via an initial public offering in second half of this year, Reuters reported, citing two people with knowledge of the matter. Shares of Alibaba fell 1.2% in overnight U.S. trading.

Baidu slipped 2% in U.S. trading on Thursday after Fitch Ratings placed the internet-search provider on negative watch, citing an increase in overall business risk following rapid growth in its financial services activities. In other news, Continental said it has signed a strategic cooperation agreement to co-develop autonomous cars with Baidu.

China Evergrande Group advanced 4.7% after a second round of stake sale in Hengda Real Estate Group. The developer raised 39.5 billion yuan ($5.8 billion) from the sale of a 12.96% stake in Hengda Real Estate Group.

-- Nimesh Vora and V. Phani Kumar

--Nikkei Markets is a real-time financial news service for South East Asia's markets published by Nikkei NewsRise Asia Pte Ltd, a Nikkei and NewsRise joint venture company. Nikkei Markets provides wide companies coverage in the region, including the Nikkei's Asia300 companies.

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