Hong Kong shares edged higher on Thursday but pulled back from an intraday high as a relief rally on the back of hopes for a resolution to Europe's debt crisis showed signs of fading.
The benchmark Hang Seng Index was up 0.47% at 19,134.45 by the midday trading break. It had risen more than 1 percent during morning trading.
The index slumped to its lowest in more than two years on Wednesday but late-session buying lifted the benchmark above the 19,000 level that has held for the past two sessions.
Insurers, one of the hardest hit sectors on Wednesday, were the top boost to the benchmark. AIA Group and China Life Insurance Co, each gained almost 3%.
Optimism over Europe fueled earlier gains as traders covered short positions that remained elevated at 10.5% of total turnover on Wednesday.
"We expect the lingering European sovereign-debt crisis to weigh further on Hong Kong stocks in coming weeks," said Sun Hung Kai Financial strategist Daniel So in Hong Kong, adding that the Hang Seng index could head as low as 16,000-17,000.
So, who remains bearish on materials and resources counters, said weakness could also hit jewelry retailers, which saw strong first-half outperformance as investors shifted allocations from cyclical counters to those more dependant on domestic demand.
Footwear retailer Belle International Holdings fell 1.4%, while Esprit Holdings was down 0.4%.
During the midday trading break, Esprit posted a 98% fall in full-year net profit, missing analyst forecasts, because of one-off restructuring costs.
Fund flows continued into defensive sectors, with this year's top performing large-cap China Unicom (Hong Kong) posting another strong day with a 2% jump.
Unicom's 54% rise this year has taken its forward 12-month valuation on a price-to-earnings basis 77% higher than the long-term historical median. Unicom trades at 31.2 times forward 12-month earnings, suggesting trade could be getting crowded.
SHANGHAI FLAT
China United Network Communications (China Unicom) gained 3.3% in Shanghai and was among the biggest boosts to the Shanghai Composite Index , but the benchmark's struggle for direction over the past month continued, leaving it flat at 2,484.5 points by midday.
A-share turnover reached the highest in nearly two weeks. Weakness in financial issues outweighed gains in materials and cement plays as investors hunted for bargains among the most battered in the last few weeks.
Anhui Conch Cement Co, down more than 18% this month, gained more than 1%. Sany Heavy Industry Co, down more than 6% in the month to date, edged up 0.5%.
Financials weighed as small to mid-sized banks began mandated margin deposit payments to the central bank as part of efforts announced in late August to contain domestic money supply.
China Minsheng Banking Corp lost 1.2%, while China Citic Bank Corp lost 1.3%. Both helped dragged the Shanghai financial sub-index down 0.2%.
