* Hang Seng closes up 0.3%, touched 1-week high, outpaces Asia
* Govt to ban face masks to quell 4-months of protests - media
* Retail sales suffer record drop, recession beckons city (Adds closing price, brokers’ comments, context)
By Noah Sin
HONG KONG, Oct 3 (Reuters) - The Hong Kong stock market jumped to its highest level in one week on Thursday after local media reported that the government could enact an emergency law to ban face masks, in fresh efforts to quell the four months-long protests gripping the city.
Local broadcasters TVB and Cable TV reported the news in afternoon trade.
The city experienced some of the most widespread violence this week between protesters and the police as China celebrated the 70th anniversary of the People’s Republic.
Many people taking part in the protests wear face masks to hide their identities and shield themselves from tear gas, meaning the ban on masks could have a deterring effect on demonstrations.
“If you could get caught by the police for covering up your face, then who would come out anymore?,” said Francis Lun, CEO at GEO Securities.
“Just that possibility of a positive development was enough to squeeze out shorts who were negative on the Hong Kong economy and markets,” said Steven Leung, executive director for institutional sales at UOB Kay Hian.
The benchmark Hang Seng Index rose over 300 points just after 0600 GMT and reversed all losses on the day. Stocks in the city were in negative territory through much of the day in tandem with other Asian markets as trade war pressure persisted.
The index was up as much as 0.6% at its highest level since September 24, before paring some gains to close 0.3% higher at 26,110.31 points. MSCI’s Asia ex-Japan index was down 0.4%.
GEO Securities’ Lun said prospects for lasting investor optimism will depend largely on whether “the legislation goes through and whether people will defy it.”
The Hong Kong economy is set for its first recession in a decade, as protests and the U.S.-China trade war dragged on. Retail sales recorded their worst year-on-year drop in August, official data showed this week. (Reporting by Noah Sin Editing by Raissa Kasolowsky & Shri Navaratnam)