* CSI300 +0.9 pct; SSEC +1.1 pect; HSI -0.9 pct
* Weak PMI data reinforces expectation of government stimulus
* China stock investors increase leveraged bets this week
SHANGHAI, July 24 (Reuters) - China stocks extended their recovery on Friday morning, with the Shanghai market heading for its seventh-day gain -- its longest winning streak in two months -- as investors increased leveraged bets despite disappointing July factory activity data.
But Hong Kong stocks fell, following sluggish overseas markets, and amid investor concerns over China’s economy.
A preliminary private survey showed that China’s factory sector contracted by the most in 15 months in July as shrinking orders depressed output. But investors expected the weak showing to prod Beijing into rolling out more stimulus measures.
“We think that recent policy easing has yet to fully feed through into stronger economic activity and expect policymakers to respond to signs of weakness by stepping up support in order to prevent growth from slipping much further this year,” Capital Economics wrote in a report.
Hu Jiani, analyst at Cinda Securities, said there was a strong expectation that the government will accelerate infrastructure investment later in the year, and will soon launch the third batch in a local government debt-to-bond swap scheme aimed at aiding the economy.
The CSI300 index rose 0.9 percent, to 4,288.11 points at the end of the morning session, having rebounded over 3 percent this week.
Shanghai Composite Index gained 1.1 percent, to 4,167.94 points, heading for a weekly rise of more than 5 percent.
Signs of market stabilization following a raft of government rescue measures have emboldened investors, who increased leveraged bets by more than 10 billion yuan during the first three days of the week, according to latest data on outstanding margin loans, or money investors borrow to buy stocks.
Most sectors rose, with real estate and infrastructure stocks particularly strong, on stronger expectation of policy support after the weak PMI survey.
Banking stocks remained weak, underperforming the broader market.
In Hong Kong, the Hang Seng index dropped 0.9 percent, to 25,161.26 points, while the Hong Kong China Enterprises Index lost 1.1 percent, to 11,708.98.
Most sectors dropped, with financial and tech shares among the biggest decliners.
Bucking the trend, Chinese milk formula maker Yashili International Holdings Ltd surged nearly 5 percent, after saying it has agreed to buy an infant milk formula unit from Danone SA and will work with the French dairy giant on a New Zealand manufacturing plant.
China Everbright Bank also rose, after an exchange disclosure that China’s state investor, Central Huijin, has increased its holdings of the lender’s Hong Kong-listed shares.
Samuel Shen and Pete Sweeney; Editing by Simon Cameron-Moore