HONG KONG: Hong Kong stocks rose Friday, driving the Hang Seng Index to its biggest monthly gain since October, as Deutsche Bank AG recommended buying China Unicom (Hong Kong) Ltd and Tencent Holdings Ltd advanced on optimism profits will rise.

The Hang Seng Index added 1 percent or 209 points to close at 20,608.70.

It had a weekly advance of 3.6 percent, the most since the week ended December 4. The gauge increased 2.4 percent this month.

Concerns over monetary tightening on the mainland and government deficits in Europe have dragged the index down by 10 percent from its November high.

However, "earnings reports have been pretty strong," said Winson Fong, who helps manage about $2.5 billion at SG Asset Management HK Ltd.

"People are also becoming less panicked about Beijing's tightening and Europe's deficit crisis," he added.

The Hang Seng China Enterprises Index, which tracks the H-shares of Hong Kong-listed mainland companies, rose 1.4 percent to 11,543.73.

Shares on the main Hang Seng Index are priced at an average 13.3 times estimated earnings, down from 18.1 times on November 16, when the index closed at its highest level for 2009, according to Bloomberg data.

China Unicom jumped 7.6 percent to HK$9.31. Deutsche Bank lifted its recommendation to "buy" from "sell", citing a "benign competitive" environment. The brokerage boosted its share-price estimate by 78 percent to HK$13, according to a research report Friday.

China Telecom Corp, the country's biggest fixed-line phone carrier, gained 3.3 percent to HK$3.41. Deutsche Bank raised its recommendation to "buy" from "hold", and increased its share price estimate to HK$4.60 from HK$3.40.

Tencent added 1.9 percent to HK$152.20 after NetEase.com, China's third-biggest online games provider, reported fourth-quarter profit that beat analysts' estimates.

Cathay Pacific Airways Ltd advanced 2.1 percent to HK$14.42, after the city's biggest carrier said it will invest 1.7 billion yuan ($249 million) in affiliate Air China Ltd's cargo unit. Air China suspended trading in its shares Friday.

Li & Fung Ltd, the world's largest supplier of toys, clothes and furniture to retailers, rose 1.1 percent to HK$36.10, after it agreed to pay as much as 173 million pounds ($264 million) to buy Visage Group Ltd, a private-label apparel supplier to UK retailers.

Just five stocks dropped on the 42-member Hang Seng Index.

Its futures advanced 1 percent to 20,537.

Bloomberg News

(HK Edition 02/27/2010 page2)