China, Hong Kong Shares Advance On Improved Services PMI

Stock markets in China and Hong Kong advanced Tuesday after data showed that China's services industry expanded at its fastest rate in 19 months in May.

Hong Kong's Hang Seng advanced 0.41 percent or 74.75 points to 18,260.34 and Chinese Shanghai Composite rose 0.15 percent or 3.37 points to 2,311.92.

China Services Purchasing Managers Index (PMI) rose to 54.7 in May compared to 54.1 in April, according to data released by HSBC Holdings Plc and Markit Economics. Markit cited new business as the main factor behind the latest increase in services output.

Growth of services activity picked up again in May, thanks to a sustained gain in new business. This should reduce the fears of a sharp growth slowdown. Going forward, the expected fast delivery of a mix of supportive measures should filter through to further boost services output and employment, said Hongbin Qu, chief economist for China and co-head of Asian Economic Research at HSBC.

However, the latest services data contradicted the nation's official survey of services businesses released over the weekend. The government-backed survey showed that the non-manufacturing sector grew at a slower pace in May compared to the previous month as continuing debt crisis in Europe and the government's efforts to curb the property market boom affected the services industries.

The reason for the contradiction is that HSBC services PMI covers only the service sector, which includes activities by real estate developers but excludes construction. The official index also covers construction, but excludes financial services.

The investor sentiment improved ahead of the emergency teleconference among G7 leaders, who are expected to put more pressure on European leaders to act.

It's interesting to see what G7 will discuss ahead of the ECB meeting tomorrow. They might probably put pressure on the ECB to do something and such expectations will help support stocks, Eiji Kinouchi, chief technical analyst at Daiwa Securities, told Reuters.

Property developers and financial companies' shares were among the best performers. Hang Lung Properties gained 2.06 percent and Wharf Holdings advanced 1.91 percent while Cheung Kong Holdings Ltd rose 0.58 percent.

Among the financials, Bank of China gained 1.70 percent and Industrial & Commercial Bank of China rose 1.08 percent.