Hong Kong stocks set for best week in four months; China shares slide

SHANGHAI (Reuters) - Hong Kong stocks extended yesterday's sharp gains on Friday morning, set to have their best week in four months, as weakness in the U.S. currency and low treasury yields helped ease fears of capital outflow from emerging markets.

The benchmark Hang Seng index added 0.4 percent, to 22,546.76 points, while the Hong Kong China Enterprises Index gained 0.2 percent, to 9,616.88 points.

Barring a correction, the benchmark index was set to have its best weekly gain since Sep. 9, up around 2.5 percent.

The dollar index, which tracks the greenback against six major world currencies, hit a low of 101.37 in early trade, around 2.4 percent down from a intraday high set on Tuesday.

Most sectors in Hong Kong gained modestly, with tech stocks the best performer, up more than 1 percent.

MAINLAND STOCK MARKET

China stocks pulled back in early trade, but Shanghai shares were poised to break a five-week losing streak as the market carries solid momentum into 2017 amid signs of economic stabilisation.

The Shanghai Composite Index lost 0.1 percent, to 3,161.77 points, putting on nearly 1.9 percent so far this week. The blue-chip CSI300 index fell 0.3 percent, to 3,357.50 points.

"Investors are likely to stay lukewarm on the stock market until the end of Lunar New year when sentiment is expected to improve," said Cao Xuefeng, head of research at Huaxi Securities.

He noted that Friday's bearish sentiment on the mainland, as the market corrects, was partially offset by strength among energy majors and Beijing's efforts to defend the yuan.

China's central bank set the official yuan midpoint at 6.8668 per dollar prior to market opening on Friday, the strongest fixing in a month, sparking speculation that Beijing wants a firm grip on the currency ahead of U.S. president-elect Donald Trump's inauguration later this month.

Market response towards the finance ministry's resolution to study new measures to cut taxes and reduce the overall cost burden on firms was muted.

Sector performance on the mainland was mixed.

Property stocks retreated despite media reports that China's average home prices were forecast to rise 4.1 percent in 2017.

(Reporting by Jackie Cai and John Ruwitch)