Hong Kong stocks hit 2010 high

8220;With market sentiment improving,investors are chasing laggards. Retail,as well as institutional investors,will likely look to build positions in banks,which are still trading at fairly attractive valuations,8221; said Mark To,head of research at Wing Fung Financial in Hong Kong.

Mainland banking shares helped fuel the rally. They carry a large weighting on the Hang Seng index and have sharply underperformed the wider market throughout the year on fears of lending curbs and bad loans and higher capital requirements.

Still,the index is technically overbought. The 14-day relative strength index rose to 78,well above the overbought mark of 70.

Expectations that the Federal Reserve will provide fresh stimulus for the US economy boosted stock markets across Asia.

Credit Suisse said it was adding to its overweight position in Asia ex-Japan,while downgrading its recommendation on Continental Europe to neutral.

8220;There is a very clear link between a weaker dollar and NJA non-Japan Asia outperforming. We would see this happening if,as we expect,the U.S. renews QE,8221; Credit Suisse analysts said in a note.

Mainland Chinese banks listed in Hong Kong are trading at discounts to long-term valuations based on forward twelve-month price-to-book as well as price-to-earnings multiples.

China Construction Bank CCB rose 1.8 per cent and was the fourth-biggest boost to the broad market,while HSBC rose 1.4 per cent. Industrial and Commercial Bank of China ICBC rose 1.9 per cent.

ICBC shares have fallen 8.5 per cent this year compared with a 4.6 per cent gain for the Hang Seng Index. HSBC shares are down over 8 per cent for the year.

ICBC trades at a 20 per cent discount to its 10-year median price-to-book ratio of 2.4,Thomson Reuters Starmine data showed. CCB trades at a 17 per cent discount.

Property developer Hang Lung Properties Ltd rose 4.6 per cent. The stock largely missed out on a wider rally in local property plays in September,partly due to its exposure to the mainland market.

Hang Lung is up 10.1 per cent since the end of August,while rivals Sun Hung Kai Properties and Cheung Kong have risen about 20 per cent.

Bucking the trend,Belle International fell 3.3 per cent as investors took gains from a rally that took the footwear retailer to a record high on Monday.

A sustained recovery in trading activity after the summer lull has lifted Hong Kong Exchanges and Clearing Ltd shares to the highest level since May 2008 and up nearly 30 per cent in the past month. HKEx shares closed up 0.2 per cent.