* CSI300 +0.7 pct; SSEC +0.5 pct; HSI +0.3 pct
* Hong Kong dollar strengthens, offshore stabilizes
* IMF reiterates support for HK’s Linked Exchange Rate System
SHANGHAI, Jan 21 (Reuters) - China and Hong Kong stocks rebounded on Thursday morning, aided by signs of stabilisation in their currencies even as underlying fragility in global financial markets tempered investors’ mood.
China’s bluechip CSI300 index reversed initial losses and ended morning trade up 0.7 percent, at 3,195.07 points. The Shanghai Composite Index gained 0.5 percent, to 2,991.78 points.
Hong Kong stocks, which fell to 3-1/2 year lows on Wednesday on currency depreciation worries, was also firmer by lunch time.
Investors have been unnerved by the Hong Kong dollar’s sharp slide in the week, with Wednesday seeing the weakest level for the currency against the U.S dollar in more than eight years.
It managed to bounce in morning trade on Thursday after Hong Kong authorities vowed to keep the city’s currency stable, and expressed confidence in handling capital outflows.
The International Monetary Fund (IMF) reiterated its continued support for Hong Kong’s Linked Exchange Rate System, a regime that ties the value of the Hong Kong dollar with the U.S. dollar.
Investor sentiment was also aided by signs that the offshore yuan, previously the target of speculative short sellers and a key driver of volatility in global markets, have steadied over the past week.
David Dai, Shanghai-based investor director at Nanhai Fund Management Co, said mainland stocks have already priced in much of the bad news and will likely stabilize.
“With stocks having fallen so much, much of the risk has been priced in and another free-fall is quite unlikely, although the chance of a sustainable rebound is also slim,” Dai said.
“China’s economy is slowing, but it’s still growing much faster than U.S. and Europe. While the yuan is under depreciation pressure, China has the ability to control the pace of declines.”
Most sectors in China rose, with banking and healthcare stocks among the leading gainers.
In Hong Kong, the Hang Seng index added 0.3 percent, to 18,945.60 points, while the Hong Kong China Enterprises Index gained 0.2 percent, to 8,032.38.
Energy shares rebounded sharply, but many sectors were still in the red.
Samuel Shen and Pete Sweeney; Editing by Shri Navaratnam