China's blue chip index near 2-1/2-year high on stimulus, Hong Kong up

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.

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 a report.

** The U.S. House of Representatives passed legislation on Wednesday that would penalize 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.