By Parvathy Ullatil
HONG KONG (Reuters UK) - Shares in HSBC Holdings jumped over 4 percent in Hong Kong on Monday after a UK newspaper reported that Europe's largest lender had discussed a potential investment by China's sovereign wealth fund.
Shares in HSBC (HSBA) began the afternoon session up 4 percent, extending a two-day, 7-percent rally and heading toward its biggest single-day gain since March.
The Sunday Telegraph said bank chairman Stephen Green had met officials from the China Investment Corporation several times in recent months, discussing among other things the possibility of the fund buying HSBC's shares on the open market.
But analysts said HSBC was also reacting to short-covering in Hong Kong after Citigroup (C) joined JP Morgan (JPM) and Wells Fargo (WFC) in reporting smaller-than-expected losses for the first half, calming credit market worries.
Others were sceptical about CIC's reported interest in HSBC, given ongoing turmoil in financial markets and its less-than-stellar track record abroad.
"The report is complete nonsense," said a financial analyst with Haitong Securities in Shanghai
"It doesn't make sense for CIC to invest in overseas financial institutions when nobody knows where the bottom of the credit crisis could be," the analyst said.
"Regulators have repeatedly warned Chinese financial firms to pay extreme attention to the uncertainties of overseas markets.
"As a government investment agency, I think CIC must be even more careful about this."
CIC, set up September to earn higher returns on a portion of China's official reserves, took a $3 billion stake in private equity house Blackstone Group (BX) before its initial public offering last year, and bought a $5 billion stake in Morgan Stanley (MS).
Blackstone, however, has shed more than 40 percent of its value since its debut, putting pressure on CIC.
Shares in HSBC fell to their lowest level in five months last week as investors prepared for more bad news from U.S. mortgage lenders and small banks. But on Monday, they shot up as much as 4.5 percent before retreating, standing 3.8 percent higher at HK$124.50, partly because of the report.
"The nature of investment seems to be passive, with no real fit between HSBC and CIC. It is most likely something of a one-off transaction," said KW Wong, analyst with BOCI Research.
Despite the lack of obvious synergies, some analysts argued an investment may open doors for HSBC, expected to be among the first foreign firms to list on a mainland Chinese bourse.
CIC officials were not available for comment.
But Gao Xiqing, CIC's president and chief investment officer, said last month that the fund had a broad investment horizon and had been looking at various opportunities across the globe.
(Additional reporting by George Chen; Editing by Anne Marie Roantree)
