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by Vikram S.Subhedar and Farah Master

HONG KONG/SHANGHAI, Aug 17 (Reuters) - Shanghai's key stock
index rose on Tuesday led by property developers on
expectations China's government will refrain from any
additional steps to cool the real estate market.

The Shanghai Composite Index rose 0.4 percent to 2,671.9
points, up over 15 percent since early July. Hong Kong's Hang
Seng index edged 0.1 percent higher.

Improving liquidity following large capital raisings by
Chinese banks and growing investor appetite for Chinese shares
have helped the Shanghai Composite outperform other regional
indices since the beginning of July.

The index lost almost a quarter of its value over the
second quarter after Beijing moved to rein in property
speculation, stirring fears that harsh tightening would lead to
a sharp economic slowdown.

Data from the National Development and Reform Commission
showed property prices have stabilised in major cities last
month and although existing policies look set to stay, analysts
say new measures are unlikely.

"The fear of further policy tightening is taking a backseat
at the moment," said Louis Wong, research director at Hong
Kong-based Phillip Securities, referring to policies targeting
the property market.

Shanghai's property sub-index has recovered some of its
losses in past few weeks and rose 1.1 percent on Tuesday, but
is still down 20.6 percent this year.

Developer Gemdale Corp gained 0.9 percent, while China
Vanke Co Ltd rose 0.6 percent.

Everbright Bank's Wednesday share trading debut will be
watched closely as a gauge of overall market sentiment
following the 76.3 percent surge in shares of Jihua Group s on
their debut on Monday.

HK EDGES HIGHER

The Hong Kong market ended marginally higher after property
stocks rose by the close of trading after strong land auction
results on Tuesday suggested demand for property remained
strong.

Hong Kong auctioned two pieces of land in Kowloon for a
combined value of HK$7.61 billion, above market expectations,
just days after the government announced a series of measures
to cool the sizzling property market.

"It's an important signal to the market that the bidders
were aggressive at the auction. That means that they probably
think that there is real demand for housing in Hong Kong and it
remains strong," said Alex Wong, director at Ample Finance
Group.

The property sub-index rose as much as 1.1 percent after
the auction results but eased to end the day 0.5 percent
higher.

Sino Land gained 3.6 percent. It was the most heavily
traded stock on the Hang Seng index with over three times the
stock's 30-day average volume changing hands.

Turnover on the Hong Kong stock exchange fell to its lowest
in over three weeks, tracking the dip in trading activity seen
on Wall Street overnight.

The technical outlook for the Hang Seng Index, which is
testing a key support at its 200-day moving average, points to
further downside. A momentum indicator, the moving average
convergence-divergence, has also recently turned bearish.

A sustained rally in mainland shares, however, would lend
support to the Hong Kong market, Phillip Securities' Wong
said.
(Editing by Brett Cole and Tomasz Janowski)