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China stocks end higher, HK dips amid worries of Fed’s rate stance

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HONG KONG — China stocks closed higher on Tuesday after a rangebound day of trade, while Hong Kong stocks lost steam, as strong U.S. services data raised doubts whether the Federal Reserve would opt to reduce the size of its interest rate hikes so soon.

The concerns over the Fed’s intentions counter-balanced some of the optimism arising from hopes that China would soon dial back its strict zero-COVID strategy.

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China’s blue-chip CSI 300 Index gained 0.54%, while the Shanghai Composite Index was nearly flat. Trading halted for three minutes on Tuesday on Chinese markets, as the nation paid respects to late former leader Jiang Zeming.

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Hong Kong stocks declined after hitting their highest level since Sept. 1 on Tuesday – Hang Seng Index fell 0.4% and Hang Seng China Enterprises Index slid 0.8%.

China is set to announce a further easing of some of the world’s toughest COVID-19 curbs as early as Wednesday, sources told Reuters.

More Chinese cities have relaxed some quarantine and virus testing rules, with Beijing city saying COVID-19 test results are no longer required to enter parks, supermarkets, offices and airports.

China may eventually downgrade its management of COVID-19 as a top-level Category A infectious disease to a less strict Category B disease as early as January.

“We think A-shares will benefit from both the easing of COVID-19 containment measures and the prospect of a recovery that is likely to take hold around Q2/Q3 in 2023,” said Redmond Wong, Greater China market strategist at Saxo Markets.

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Yet, at least in short term, rising COVID-19 cases and containment measures are dampening demand and production. China’s services activity shrank to six-month lows in November.

“We expect industrial production growth to drop further to 3.5% year on year in November (vs. 5.0% in October), due to slower exports and disruptions from the recent widespread COVID-19 outbreaks,” BofA Securities said in a note.

Food and beverages and semiconductors jumped 2.8% and 2.2%, respectively, leading the gains. Real estate and healthcare dropped 1.3% and 1.1% respectively.

In Hong Kong, tech firms retreated 1.8% with Alibaba down 3%. (Reporting by Summer Zhen; Editing by Simon Cameron-Moore and Uttaresh.V)

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