Hong Kong - Shares in Hong Kong and China rose on Monday, extending gains seen at the end of last week, as investors brushed off another set of data showing Chinese manufacturing activity weakened in March.

Hong Kong's benchmark Hang Seng Index surged 1.91 percent, or 409.75 points, to 21,846.45 on turnover of HK$74.56 billion (US$9.62 billion).

HSBC said preliminary readings showed Chinese factory activity had contracted in March, adding to concerns about the world's number two economy.

The British banking giant's flash purchasing managers index (PMI) came in at 48.1, an eight-month low and down from 48.5 in February. A final figure will be released next week.

Anything below 50 indicates contraction while a figure above points to expansion.

“The whole of Asia seems to have factored in lowered expectations for China's growth,” Yoshihiro Okumura, general manager at Chibagin Asset Management, told Dow Jones Newswires.

“Several months ago, weaker numbers would have caused more volatility.”

The figures are the latest to suggest the Chinese economy, a key driver of regional and global growth, is slowing down following several months of weak data including on trade, investment and inflation.

However, they have sparked speculation that policy makers could start to loosen their grip on monetary policy to grease the economy, with some analysts suggesting a reduction in the amount of cash banks must keep in reserve.

“With growth poised to slow below 7.5% year-over-year, we are now in easing territory for both fiscal and monetary policy,” Flemming Nielsen, a senior analyst at Danske Bank in Denmark, said.

China Mobile surged 3.88 percent to HK$67 and ICBC bank added 2.93 percent to HK$4.56.

Cathay Pacific Airways rallied 1.72 percent to HK$15.36, HSBC put on 1.44 percent to HK$77.65 and Henderson Land Development was up 0.95 percent at HK$42.50.

In China the benchmark Shanghai Composite Index rose 0.91 percent, or 18.66 points, to 2,066.28 on turnover of 110.2 billion yuan ($17.7 billion).

The Shenzhen Composite Index, which tracks stocks on China's second exchange, edged up 0.09 percent, or 0.98 points, to 1,085.48 on turnover of 114.6 billion yuan.

“Some investors may think that the weak PMI means the government won't likely tighten its monetary policy,” Haitong Securities analyst Zhang Qi told AFP.

Analysts said the Shanghai index could face resistance near the 2,100-point level.

Property developers and financial plays led the gains.

Beijing Dalong Weiye Real Estate Development soared by its 10 percent daily limit to 3.59 yuan, while Poly Real Estate rose 3.47 percent to 7.45 yuan.

Industrial Securities gained 8.72 percent to 8.85 yuan and China Everbright Bank rose 2.07 percent to 2.47 yuan. - Sapa-AFP