Share prices finished the morning higher after China's consumer price index (CPI) figure came in lower than expected, sparking hopes that Beijing will pursue more pro-growth policies as inflation concerns ease.

China announced today that its CPI growth decelerated to 6.3 pct year-on-year in July from 7.1 pct in the previous month.

Dealers said Wall Street gains and lower oil prices also encouraged investors to step into the market, while mainland bourses showed signs of stabilizing after sharp drops in the last two days.

Large-caps including HSBC and Hong Kong Exchange & Clearing (HKEx), China banks and property firms led the gains, while China Mobile kept the benchmark index in check after a target price cut by Citigroup.

Exporter Li & Fung surged 5.6 pct ahead of its first-half results announcement tomorrow, while Cathay Pacific rose more than 7 pct as fuel cost concerns eased due to the oil price retreat.

Foxconn surged over 15 pct, extending its 9.45 pct gain yesterday, after Merrill Lynch upgraded the cellphone maker to "neutral" from "underperform".

Gold stocks slumped as gold prices hit their lowest levels since December due to the US dollar's strength.

The Hang Seng index ended the morning up 377.54 points or 1.73 pct at 22,236.88, off a low of 21,797.89 and high of 22.309.33.

Turnover was 39.1 bln hkd.

"The local bourse staged a decent rebound as Wall Street's extended rally and China's lower-than-expected CPI figure lifted sentiment," said Matthew Kwok, research head at Tanrich Securities.

"The mainland markets are showing initial signs of stabilizing as the latest CPI figure eases investors' worries about further macro tightening measures in China," he said.

The Shanghai market's benchmark index ended the morning up 0.22 pct after losing about 9.4 pct in the past two trading days.

"However, whether the local bourse can sustain its rally will depend much on moves of Wall Street in the near term," Kwok said.

"Short-selling restriction measures implemented by US regulators on major financial stocks will expire soon. The US stock market could face some volatility after the expiry," he said.

"In that case, local shares may follow Wall Street and see some volatility as well," he added.

He expects the key index to face resistance at around 22,300-22,400 points in the short term.

Castor Pang, strategist at Sun Hung Kai Financial group, said the outlook for China markets remains uncertain.

Although China's consumer inflation cooled, producer prices data released yesterday showed continuing price pressures.

China's producer price index (PPI) rose 10 pct in July, the fastest rate since 1996, suggesting that the high prices paid by companies will feed through to consumers again at some point in the future.

Among large-caps, HSBC was up 1.80 hkd or 1.40 pct at 130.10, HKEx was up 3.0 hkd or 2.8 pct at 110.40 and China Life was up 0.65 hkd or 2.3 pct at 29.0.

China Mobile slumped 2.35 hkd or 2.4 pct to 96.65 after Citigroup cut its target price on the stock to 120 hkd from 150, citing regulatory risks and increased competition in the sector.

However, Citigroup maintained a "buy" rating on the mobile phone giant, saying that concerns in the market about China Mobile's first-half earnings are likely "overdone".

Foxconn International jumped 1.21 hkd or 15.6 pct to 8.97, extending its 9.45 pct gain yesterday, after Merrill Lynch upgraded the cellphone maker to "neutral" from "underperform".

Li & Fung, which supplies consumer goods to US retailers such as Wal-Mart, surged 1.45 hkd or 5.6 pct at 27.30 ahead of its first-half results announcement tomorrow.

Cathay Pacific surged 1.08 hkd or 7.7 pct to 15.08 on lower oil prices.

China airlines were mixed, with Air China up 0.13 hkd or 3.50 pct at 3.80, China Eastern down 0.04 hkd or 2.03 pct at 1.93 and China Southern down 0.01 hkd or 0.37 pct at 2.68.

Properties were sharply higher as concerns over inflation and possible interest rate hikes eased after the recent drop in oil prices.

Cheung Kong was up 3.10 hkd or 2.84 pct at 112.40, Henderson Land gained 1.45 hkd or 3.08 pct at 48.60 and Sun Hung Kai Properties was up 4.70 hkd or 4.23 pct at 115.70.

Hang Lung Properties rose 0.85 hkd or 3.60 pct to 24.45 ahead of its year to June results tomorrow.

China banks were also higher on hopes that Beijing may ease credit restrictions.

China construction Bank was up 0.12 hkd or 1.80 pct at 6.80, Bank of Communications up 0.17 hkd or 1.79 pct at 9.66, ICBC up 0.04 hkd or 0.70 pct at 5.75, and Bank of China gaining 0.05 hkd or 1. 44 pct at 3.52.

Gold stocks slumped as gold prices fell further amid the US dollar's strength.

Sino Gold tumbled 2.90 hkd or 8.8 pct at 30.0, Zhaojin Mining slumped 0.34 hkd or 5.35 pct at 6.01 and Lingbao Gold was down 0.09 hkd or 4.05 pct at 2.13.

Angang was up 0.14 hkd or 1.24 pct at 11.40 after reporting a 24.8 pct rise in first half net profit to 5.99 bln yuan from a year earlier due to higher product prices and reduced corporate income tax.

Among companies reporting their results today, CLP Holdings gained 1.50 hkd or 2.23 pct at 68.90, China Shipping Development surged 1.04 hkd or 5.73 pct at 19.20, Country Garden was up 0.01 hkd or 0.23 pct at 4.43.

CLP announced after morning close an 8.5 pct drop in first-half net profit due to absence of one-off gains which boosted the year-earlier earnings.

Gome rose 0.15 hkd or 4.55 pct at 3.45 ahead of its interim results.

Deutsche Bank expects the Chinese electronics and appliances retailer to report first-half net profit of 1.09 bln yuan, up 175 pct from a year earlier, amid good sales growth and without last year's big exceptional loss.

Oil refiner Sinopec was down 0.01 hkd or 0.12 pct to 8.37 on profit-taking after recent gains triggered by lower crude oil prices.

Oil dipped to as low as 112.72 usd overnight, before coming off lows amid worries over tensions between Russia and Georgia.

PetroChina-- which has both oil production and refining businesses-- gained 0.10 hkd or 0.98 pct at 10.28.

Upstream oil play CNOOC gained 0.30 hkd or 2.94 pct at 10.52 after announcing that it made a new oil and gas discovery, named Bozhong (BZ) 29-5, in the Yellow River Mouth Sag of Bohai Bay.

The Hang Seng China Enterprises index was up 219.20 points or 1.88 pct at 11,864.33.

(1 usd =7.8 hkd)