HONG KONG: Share prices closed sharply higher yesterday as upbeat signs of economic recovery from the mainland and the US gave a strong lift to the region's bourses.

Analysts said institutional investors continued to snap up equities on hopes for a quicker recovery of the Chinese mainland economy which will, in turn, benefit Hong Kong.

Most investors shrugged off the city's first confirmed case of H1N1 influenza as their buying sent the benchmark Hang Seng index surging 860.06 points, or 5.54 percent, to close at 16,381.05, its best closing level since October 15, 2008.

"Judging from the strong showing of regional markets and the heavy turnover of the local bourse, we can conclude that funds continued to pour into the region," said Conita Hung, head of research at Delta Asia Securities.

Turnover jumped to HK$80.3 billion from HK$57.7 billion in the previous trading day.

Low bond yields could have also played a role in driving liquidity into equities, she added.

Matthew Kwok, research head at Tanrich Securities, agreed with Hung, saying that brighter economic prospects for the mainland economy triggered strong buying.

The mainland's official purchasing manager's index (PMI) for April , released on Saturday, rose to 53.5 from 52.4 in March, holding firm above the boom-bust line of 50 for the second consecutive month. The index has risen for five straight months.

Meanwhile, the April reading of a similar PMI survey conducted by brokerage CLSA and released yesterday, climbed above the watershed of 50 for the first time since July last year, rising to a nine-month high of 50.1 from 44.8 in March.

In the US, consumer sentiment continued to improve and falls in manufacturing activity have eased, raising hopes that the country's economy may soon hit the road to recovery.

An Institute for Supply Management report showed that manufacturing activity in the US contracted in April at the slowest pace in seven months.

Meanwhile, a Reuters/University of Michigan final index of US consumer sentiment posted its second straight gain in April.

Thomas Ng, investment strategist at Quam Securities, also noted continuous capital inflow into the region.

He also said local shares took their lead from the strong performance of the Shanghai bourse, which closed at a nine-month high yesterday.

Analysts said investors basically shrugged off the threat of an influenza epidemic.

"People are less nervous now than they were during the SARS pandemic in 2003," Delta Asia Securities' Hung said.

"They are less worried now as the H1N1 influenza is more curable while medical authorities have gained experience from the SARS pandemic and have more expertise now in preventing the spread of the virus," she said.

Tanrich Securities' Kwok said news about the H1N1 influenza had not caused too much nervousness among investors as economic activities had not been affected much and there was only one confirmed case so far.

Analysts expect the local bourse to continue to rally for the short term driven by liquidity, until the benchmark index meets a likely resistance at around 16,600 to 16,800 points.

(HK Edition 05/05/2009 page16)