April 8 (Reuters) - Hong Kong's benchmark Hang Seng index posted its biggest daily rise in more than three years and hit a near seven-year high as mainland investors poured in on Wednesday, the first day of trading in the city after a holiday break.
For the first time, Chinese investors on Wednesday used up the entire 10.5 billion yuan ($1.69 billion) daily investment quota that allows them to buy Hong Kong stocks under the Hong Hong-Shanghai Stock Connect scheme.
Analysts said the surge in interest was triggered by Beijing's move last week to let mutual funds invest in Hong Kong via the connect programme, and allowed Chinese insurers to invest in Hong Kong's Growth Enterprise Market.
"The party has begun, and you can feel the excitement today," said Chen Zhizhong, Shenzhen-based analyst at China Merchant Securities. "It's hard to say when the music will stop."
Hang Seng index shot up 3.8 percent, to 26,236.86, the highest level since May 9, 2008. Wednesday's percentage gain was the biggest since Dec. 1, 2011.
The China Enterprises Index, which tracks Chinese companies listed in Hong Kong, jumped 5.8 percent, to 13,396.59 points, the highest level in four years.
Chen said that investors are betting the valuation gap between stocks in Hong Kong and China will narrow.
That hope appears self-full filling. The index measuring price differences between dual-listed companies in Shanghai and Hong Kong slumped 5 percent to 128, meaning China stocks are 28 percent more expensive than their Hong Kong peers. That's a big drop from its March peak of 137.
Among the most actively traded stocks on Hong Kong's main board were SMIC, up 11.5 percent to HK$0.87 GOME , up 35.2 percent to HK$1.69 and Ali Pictures , up 36.7 percent to HK$3.91.
Total trading volume of companies included in the HSI index was 4.2 billion shares. (Reported by Samuel Shen and Pete Sweeney; Editing by Richard Borsuk)