* CSI300 +1.4 pct; SSEC +0.9 pct; His: 2.1 pct
* Investor interest shift back into small-caps
* Trainmakers China CNR and CSR Corp slump on profit-taking
By Samuel Shen and Pete Sweeney
SHANGHAI, April 21 (Reuters) - Stocks in China rebounded on Tuesday, with investor interest shifting back to small caps as a slump in top trainmakers China CNR and CSR Corp soured sentiment toward infrastructure stocks.
Hong Kong shares also rose, encouraged by signs that more mainland money was flowing into the city’s markets.
The CSI300 index rose 1.4 percent to 4,584.51 points by the end of the morning session, while the Shanghai Composite Index gained 0.9 percent to 4,253.55 points.
The Hang Seng index added 2.1 percent to 27,669.75, while The Hong Kong China Enterprises Index gained 2.1 percent to 14,406.57.
Major indexes had tumbled on Monday as fears of regulatory crackdowns outweighed the central bank’s latest steps to shore up the slowing economy.
State media reported on Tuesday that China’s parliament had began reviewing draft changes to the Securities Law, paving way for a switch to a “registration system” for initial public offerings (IPO), from the current approval process.
“The reform has been long anticipated, and the lengthy process of law amendment means we won’t see a big increase in share supplies in the short term,” said Hou Yingmin, analyst at brokerage Shanghai Aj Corp.
“Renewed interest in expensive small-caps shows how speculative the market is. I don’t think the current trading turnover is sustainable, and the market will likely enter a consolidation stage soon.”
China’s stock trading fever has made the Shanghai Stock Exchange the world’s biggest in terms of turnover, surpassing the New York Stock Exchange, but the explosion in volumes - surpassing 1 trillion yuan ($161.28 billion) for the first time on Monday - has exceeded the ability of the exchange’s software to report it.
In a article commenting on the surge in trading volume, official Xinhua News Agency cautioned investors against “irrational exuberance.”
”China’s economic restructuring needs support from a healthy capital market, but such a support should be in the form of a slow and long bull (market), based on improvement in corporate earnings, the article said.
The official Shanghai Securities Journal reported on Tuesday that trust companies on the Chinese mainland are flooding into the Hong Kong stock market, and are facing a shortage of overseas investment quotas.
Adding to signs of more money inflows, Bosera Asset Management Co on Monday launched China’s second mutual fund product that buys Hong Kong stocks under the Shanghai-Hong Kong Stock Connect scheme.
Bucking the trend, CSR Corp and China CNR both slumped on Tuesday on profit-taking after surging recently on plans to merge.
Both companies fell by their maximum 10 percent limit in Shanghai and over 13 percent in Hong Kong. (Editing by Kim Coghill)