May 10, 2017 / 4:55 AM / a year ago

China stocks shrug off slower producer inflation; Hong Kong up

* SSEC +0.3 pct, CSI300 +0.4 pct, HSI +0.8 pct

* China producer price gains slow further

* Hong Kong shares extend gains, Tencent at fresh record high

SHANGHAI, May 10 (Reuters) - Chinese stock markets rose on Wednesday morning, as strong gains in small-caps offset soft data showing the country’s April producer price inflation cooled more than expected.

The CSI300 index rose 0.4 percent, to 3,366.66 points at the end of the morning session, while the Shanghai Composite Index gained 0.3 percent, to 3,088.63 points.

China’s factory gate prices cooled more than expected in April, in a sign manufacturing activity may be losing momentum along with other sectors of the economy as domestic demand remains muted and the government cracks down on financial risks.

The soft data, combined with slightly slower growth in manufacturing activity, reinforces analysts’ views that China’s economic expansion remains solid but is starting to moderate after a surprisingly strong start to the year.

China’s reflation cycle in producer prices has probably peaked, and will trend down further, which could drag on economic growth in the second half of the year, said Betty Wang, senior China economist for ANZ in Hong Kong.

“Deleveraging remains the policy focus, regardless of the PPI or CPI trend. We don’t think PPI or CPI will have any significant impact on the current policy direction,” said Wang.

The People’s Bank of China injected 47.6 billion yuan ($6.9 billion) through its pledged supplementary lending (PSL) facility on Wednesday, after skipping open market operations for a third straight trading day on Tuesday.

However, worries over policy tightening lingered, as the official Xinhua News Agency published editorials for the seventh day in a row that highlighted Beijing’s concerted campaign to guard against financial risks, stoking concerns deleveraging efforts and financial regulations would not loosen.

Small-caps, in particular newly-listed stocks, bounced sharply, after a recent violent sell-off amid worries over tighter liquidity and expectations of more equity supply.

An index tracking small- and medium-sized companies gained 0.4 percent.

Sector performance was mixed, with gains led by financial stocks.

Hong Kong stocks extended gains to stand at a near 22-month peak, lifted by heavyweight Tencent Holdings, which rose 1.4 percent to a fresh record high.

Sentiment was also aided by signs of stabilisation in China stocks after sharp falls recently, with Shanghai shares steadying for the second session after a five-day losing streak.

The Hang Seng index added 0.8 percent, to 25,088.27 points.

The Hong Kong China Enterprises Index gained 1.6 percent, to 10,290.35. ($1 = 6.9059 Chinese yuan)

Reporting by Luoyan Liu and John Ruwitch; Editing by Jacqueline Wong

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