* CSI +1.6 pct; SSEC +1.9 pct; HSI +1.4 pct
* Blue chips up, ChiNext cools off
* UBS sees money flow to Hong Kong in 2-3 quarters
* Some mainland money likely to flow to Hong Kong-UBS
By Samuel Shen and Pete Sweeney
SHANGHAI, May 22 (Reuters) - China stocks jumped to fresh seven-year highs on Friday morning, and looked set for their biggest weekly gain in two months, as investors raised bets that a month-long consolidation period is ending.
The CSI300 index rose 1.6 percent to 4,919.89 points at the end of the morning while the Shanghai Composite Index gained 1.9 percent, to 4,617.02 points. Both indexes were on track to post weekly gains of nearly 7 percent.
The Hong Kong market paced gains. The Hang Seng index added 1.4 percent, to 27,918.27 points. The Hong Kong China Enterprises Index gained 1.4 percent, to 14,332.92.
Sector rotation was obvious, with financial stocks , a recent underperformer, taking the lead. Shenzhen’s start-up board ChiNext, which has been soaring, lost momentum and ended the morning flat.
“It seems that investors are afraid of missing the rally and continue coming in,” Gerry Alfonso, director of Shenwan Hongyuan Securities in Shanghai, wrote in a morning note.
They may be using additional margin financing to come back in.
As of Tuesday, the latest day for which data is available, Chinese investors had borrowed 1.98 trillion yuan ($319.60 billion) to buy stocks.
“High margin trading, and leverage generally, were the main risks to a regulatory crackdown on the current rally,” China-focused investment bank NSBO said in a research note on Friday.
Lu Wenjie, strategist at UBS Securities, suggested that one way to manage the stock “bubble” is to persuade mainland investors to put some money overseas.
“It is a daunting task to engineer a ‘slow bull’ market. Either harsh regulation or simple inaction could result in critical consequences,” Lu said in a strategy report.
“A plausible and sensible solution is to guide excess domestic capital to overseas markets,” he said.
Lu estimated that 200 billion yuan of liquidity could potentially flow into Hong Kong stocks in the coming two to three quarters.
In Hong Kong, shares of Goldin Financial Holdings and Goldin Properties Holdings bounced, rising 3.4 percent and 10.3 percent respectively, after falling as much as 60 percent in the previous session.
Lenovo Group Ltd shares tumbled 5 percent, after the world’s biggest PC maker by sales on Thursday missed analyst forecasts for its annual net profit.
$1 = 6.1953 Chinese yuan Editing by Richard Borsuk