HONG KONG, Feb 11 (Reuters) - Hong Kong's benchmark stock index eked out gains on the final trading of its worst week in nine months, hit by an outflow of funds from Greater China markets.

  The benchmark Hang Seng Index < .HSI> closed up 0.53 percent at 22,828.92, but down 4.5 percent on the week.

  The index has slipped below a trendline support, currently at 23,163 on the charts that had held since May last year, raising the risk of a retest of the December 2010 low around 22,400.

  HIGHLIGHTS

  * Tencent Holdings Ltd < 0700.HK> rose 5.3 percent in moderate volume, recovering about half of this week's losses. The stock is up 17 percent on the year, easily outpacing the Hang Seng Index's 1.7 percent decline. China's dominant Internet gaming company, has been on a tear since the start of the year as funds continue to pile into the China Internet theme.

  * Esprit Holdings Ltd < 0330.HK> ended up 4.3 percent at a 2-½ month closing high. A Hong Kong-based trader at a Korean brokerage said the company looked like it was finally in recovery mode and should resume year-on-year earnings growth from the second half.

  * The A-share vs H-share premium < .HSCAHPI> rose to a nine-month high as the Shanghai Composite Index < .SSEC> continued to outperform the Hong Kong benchmark this month. The premium, which disappeared in the third quarter of 2010 for the first time in about four years, has widened since the start of the month.

  * HSBC Holdings Plc < 0005.HK> fell 0.7 percent, the biggest drag on the benchmark after rising through the week. HSBC is still up 1.5 percent this week and 10.9 percent on the year.

  * Zhaojin Mining Industry Co Ltd < 1818.HK> was up 10.4 percent after slipping more than 20 percent from a record high in January as gold prices eased. Traders said funds might be betting on a bounce in gold prices.

  WEEK AHEAD

  Chinese economic data for January, due next week, is expected to show that lending surged and inflation accelerated, prompting concern among some investors that the central bank could take more steps to control money supply. [ID:nTOE71904U] [ID:nTOE719054]

  Markets might receive a lift from short-covering after bearish bets picked up through the week. A weak U.S. market, which some traders say is set for a pullback, could see further pressure on the Hang Seng Index. (Reporting by Vikram Subhedar Editing by Chris Lewis)

* Gold to rise to $1,388/oz -technicals

  * Coming Up: Reuters/U. Mich Sentiment Feb 1455 GMT (Updates prices, adds quotes)

  By Lewa Pardomuan

  SINGAPORE, Feb 11 (Reuters) - Gold erased some of early gains in directionless trade on Friday, under pressure from a drop in ETF holdings to their lowest since late January, a firm U.S. dollar and a lacklustre physical market.

  Premiums for gold bars were steady in Hong Kong and Singapore, with no signs of buying interest from China after the Lunar New Year celebration. Unrest in Egypt could underpin sentiment, but there was hardly any physical buying in Asia related to the deadly turmoil.

  Egypt's people-power protesters, reeling with disillusion and anger after President Hosni Mubarak dashed hopes he would resign, planned massive new demonstrations on Friday that may test the army's loyalties.

  " There's not much going on in terms of demand in the physical market. That's why there are some stocks kept here. (People) try to sell them immediately," said Dick Poon, manager of precious metals at Heraus in Hong Kong, referring to physical supply.

  " The production side and manufacturing are not back to normal after the Chinese holiday. Maybe next week. I think gold is most likely to trade in the range of $1,350 to $1,370 right now."

  Spot gold shed 50 cents to $1,362.40 an ounce by 0639 GMT, well below a lifetime high around $1,430 hit in December. Trading was thin, with Japanese investors away for a public holiday, but the price had reached an intraday high around $1,365.

  A bullish target of $1,388 per ounce has been re-established for spot gold based on an inverted head-and-shoulders pattern, according to Wang Tao, a Reuters market analyst for commodities and energy technicals.

  For a weekly gold technical outlook:

  http://graphics.thomsonreuters.com/WT/20111102084122.jpg

  The world's largest gold-backed exchange-traded fund, SPDR Gold Trust , said its holdings slipped to 1,225.526 tonnes by Feb. 10, their lowest since late January, from 1,226.436 tonnes on Feb. 9.

  U.S. gold futures for April were steady at $1,363.3 an ounce.

  The dollar touched a one-month high against the yen on Friday after data underscored that the U.S. labour market was on the mend, while the Australian dollar fell after its central bank said interest rates were likely to stay on hold for some time.

  Physical dealers said that China, the world's second-largest consumer after India, could return to the market next week, but higher prices could keep demand in check. Gold was at around $1,340 an ounce before the Lunar New Year.

  " There's not much demand from India either. The price is either too high for them to buy or to low to cash in. I think they are doing business internally, and there's no need to buy from overseas market," said a dealer in Singapore.

  " The premium for gold bar is still at $1.6, but it's likely to drop next week. We are starting to see suppliers easing up their premiums."

  In other markets, Asian stocks fell on Friday and were on
course for their biggest weekly loss in nine months, as
investors shunned risk on concerns about the pace of policy
tightening within the region and escalating tensions in Egypt.

* Stocks pulled down by continued foreign sell-off

  * Investors brace for rate hike next month

  * Insurers lose Hana down on share sale plan

  SEOUL, Feb 11 (Reuters) - Seoul shares ended lower on Friday despite a central bank decision to keep interest rates on hold, as foreign selling continued on persistent worries about inflation and monetary tightening.

  Foreign net selling stood at 615.7 billion won versus a three-month high of 1.1 trillion won ($984.7 million) on Thursday, stoking jitters about an exodus of foreign capital.

  The Bank of Korea left interest rates unchanged, but remarks by its chief indicated a high chance of an increase next month with more tightening later in the year to tame soaring inflation, analysts said. [ID:nL3E7DB058]

  Seoul shares rose after the rate freeze was announced during morning trade but fell into negative territory as foreign selling picked up.

  The Korea Composite Stock Price Index < .KS11> (KOSPI) finished down 1.56 percent at 1,977.19 points.

  " The Bank of Korea delayed the rate hike to next month, weighing on shares. The KOSPI, which has sharply fallen since early this month, may rebound briefly, but its correction period will be prolonged," Kim Joo-hyung, an analyst at Tong Yang Securities, said.

  He expected foreign selling to continue until there were clear signs of inflation easing in Asia's fourth-biggest economy.

  " South Korea, which is somewhere between an emerging and advanced country, outperformed its emerging peers in terms of share performance early this year. But it turned out South Korea also has risks of inflation and monetary tightening, which has triggered heavy foreign selling since early this month," Kim said.

  Insurers lost ground on profit-taking and disappointment about the rate freeze. Insurers usually benefit from interest rate hikes as they have substantial holdings in interest-bearing assets.

  Hyundai Marine & Fire Insurance < 001450.KS> retreated 2.9 percent, while Samsung Life Insurance < 032830.KS> dropped 2.83 percent.

  Builders finished lower, with Daewoo Engineering & Construction < 047040.KS> declining 3.38 percent and Doosan Engineering & Constructing < 011160.KS> down 4.24 percent.

  Bank shares also slid, with Hana Financial Group < 087690.KS> posting the sharpest decline of 5.66 percent after it announced a new share issue plan.

  Hana said on Thursday it would raise 1.4 trillion won through a new share issue to fund its takeover of Korea Exchange Bank < 004940.KS> .

  " The issue does not have a lock-up agreement, which could create an overhang issue for Hana shares," Son Joon-bum, an analyst at LIG Investment & Securities, said.

  " It is plausible that existing shareholders who join the share sale can sell down their current stakes and buy the new shares at a discounted price for profit-taking."

  Heavyweights such as auto and technology shares were weak, with Samsung Electronics < 005930.KS> down 2.24 percent and Hyundai Motor < 005380.KS> up 0.29 percent.

  Steel shares retreated, with South Korea's top steelmaker POSCO < 005490.KS> slipping 0.93 percent and second-ranked Hyundai Steel < 004020.KS> diving 6.47 percent.

  While shipbuilders dropped, STX Offshore & Shipbuilding < 067250.KS> bucked the trend, rising 2.4 percent after it said it had won an $160 million worth order to build four bulkers.

  Trading volume was 307.9 million shares worth 6.9 trillion won.

  The KOSPI 200 March futures < KSc1> index fell 4.95 points to 259.75 points. The KOSPI 200 spot index < .KS200> lost 4.17 points to 260.40 points.

  The junior Kosdaq index < .KQ11> dipped 0.95 percent to 517.73 points.

  Move on day -1.56 percent

  12-month high 2,121.06 27 Jan 2011

  12-month low 1,532.68 25 MAY 2010

  Change on yr -3.60 percent

  All-time high 2,121.06 27 JAN 2011

  All-time low 93.10 6 JAN 1981 (Reporting by Hyunjoo Jin, additional reporting by Ju-min Park Editing by Jonathan Hopfner)

* U.S. crude up more than 50 cents from settlement

  * Concerns escalate as Mubarak hangs on

  * Positive U.S. job data reflects stronger economy (Updates prices)

  By Seng Li Peng

  SINGAPORE, Feb 11 (Reuters) - U.S. crude futures rose above $87 a barrel as tensions in Egypt intensified after President Hosni Mubarak said he would transfer powers to his vice president but would not immediately step down as demanded by protesters.

  Increasingly sour confrontation after 17 days of unrest has raised fears of violence in the most populous Arab nation, a key U.S. ally in an oil-rich region where the chance of disorder spreading to other repressive states has troubled world markets.

  Mohamed ElBaradei, a Nobel peace prize winner and retired U.N. diplomat who runs a liberal political movement, wrote on Twitter: " Egypt will explode. Army must save the country now.

  U.S. crude for March delivery gained 53 cents to $87.26 a barrel by 0705 GMT. Brent crude for March delivery rose 39 cents to $101.26 a barrel.

  The wider gains in U.S. crude helped narrow its discount to Brent by about $2 to around $14.00 after it hit a record of $16.09 a barrel.

  " Yesterday, there were the ups and downs of hopes that the situation in Egypt was going to be resolved, but that did not happen," said David Cohen, economist at Action Economics in Singapore.

  " So, there's still a degree of uncertainty hanging. The politics in Cairo remains a source of pressure on oil prices."

  About 3.1 million bpd of oil and refined petroleum products are shipped through the Suez Canal and Egypt's SUMED pipeline, according to the head of the U.S. Energy Information Administration (EIA) Richard Newell.

  However, Newell told a congressional hearing that there was enough spare shipping capacity worldwide to move 4 million to 5 million barrels per day of oil if protests in Egypt shut down the Suez Canal and the country's major pipeline.

  Egypt has been wracked by weeks of protests over the continued rule of Mubarak and workers this week went on strike at companies owned by Suez Canal authorities. But so far the waterway has not been affected.

  Oil prices also rose on Thursday following rumours about the health of Saudi Arabia's King. But its foreign minister Prince Saud al-Faisal dismissed them, saying King Abdullah bin Abdul-Aziz was alive and in " excellent shape"

  Abdullah, around 87, has been resting in Morocco since January following a two-month stay in the United States where he underwent surgery twice after a blood clot complicated a slipped disc, state media have said.

  On oil supplies, Organization of the Petroleum Exporting Countries (OPEC) said on Thursday it raised output to a two-year high in January, the latest sign that a recovering world economy and oil prices of $100 a barrel are encouraging extra supplies from the producer group.

  In a monthly report, OPEC said January production rose by 400,000 barrels per day (bpd) to 29.72 million bpd, the highest since December 2008 when the group announced a record cut in its output.

  The higher OPEC production and comfortable oil stocks in developed nations should limit a further oil price spike despite demand hitting an all-time high later this year, The International Energy Agency (IEA) said.

  " I think there is still enough production capacity," said Cohen but we are not going to approach the (peak) levels of 2008, at least not this year," said Cohen.

  " The underlining demand is still undergoing. I do not think the tightening by the Chinese central bank is going to alter the outlook for continual growth in China and other emerging economies, and these will be supportive of oil prices going forward."

  In the U.S., data was positive with new applications for unemployment benefits dropping to a 2-1/2-year low last week, pointing to a stronger footing for the labor market as the economic recovery gathers momentum.

  Initial claims for state unemployment benefits fell 36,000 to a seasonally adjusted 383,000, the lowest since early July 2008, the Labor Department said.

  However, persisting high crude oil prices at above $100 a barrel could hurt Europe's economic recovery, said a spokeswoman for European Union Energy Commissioner Guenther Oettinger on Thursday. (Editing by Himani Sarkar)

By Saikat Chatterjee

  HONG KONG, Feb 11 (Reuters) - The offshore market for China's yuan in Hong Kong is poised for more near-term expansion, as the territory's renminbi deposits and the pipeline of new bond issues steadily grow.

  Though China ultimately controls the amount of yuan available outside the mainland, banks and companies are optimistic about the outlook for the offshore market.

  Here are some questions and answers about the offshore yuan market.

 

  HOW QUICKLY IS THE MARKET GROWING?

  Yuan deposits in Hong Kong rose 12.6 percent in December to 314.9 billion yuan ($47.8 billion), or 5 percent of total deposits. Yuan deposits were 89.7 billion yuan in June 2010.

  Bankers said much of the recent surge in the deposit base is because of companies bringing yuan into the territory to make import-related payments since the yuan is more expensive in Hong Kong.

  UBS expects deposits to double to 500 billion yuan by the end of 2011, while Standard Chartered forecast the share of Chinese imports settled in yuan would rise to 20 percent by 2015 from a paltry 1 percent now.

  The growth of assets is lagging the deposit growth though, with total " dim sum bonds" outstanding at around 80 billion.

 

  WHAT IS LIQUIDITY LIKE?

  Reflecting the relatively small yuan deposit base in the territory, interbank spot, bond and forwards markets for the yuan are just beginning to develop.

  Spot market volumes average around $3-5 million daily, compared with $2 to $3 billion in the non-deliverable forwards market and $20 to $30 billion in the mainland's markets, Goldman Sachs said in a research note.

  The deliverable forwards curve is also illiquid and trades at a premium to the NDF and the onshore curve, reflecting high demand for the tight supply of yuan in Hong Kong.

  In fact, in late October Hong Kong's central bank had to step in to settle trade-related yuan transactions after the Bank of China (Hong Kong) , the sole lender authorised to clear such trades with the mainland, ran out of its 8 billion yuan quota for the year.

  The Hong Kong Monetary Authority activated its 200 billion yuan ($30 billion) currency swap line with China's central bank to clear trade transactions.

  No banks have so far tapped the HKMA's swap line because the supply of yuan in Hong Kong has been gradually increasing to meet demand, sources said.

 

  WHY IS THE DIFFERENCE BETWEEN ONSHORE AND OFFSHORE YUAN NARROWING?

  While the premium for spot yuan in Hong Kong over yuan in mainland China has averaged between 1 to 3 percent, it has shrunk in the past month because of higher yuan supply in the territory.

  The spread of offshore yuan over onshore yuan has widened slightly because of the long Lunar New Year break that delayed some bond deals, yet it remains below levels seen in October. Most analysts expect the exchange rates to converge in as soon as a year.

  Spot yuan in Hong Kong has consistently traded at a premium to yuan in China and all recently issued yuan-denominated bonds in Hong Kong trade at a premium to their issue prices. The key driver is a lack of free flow of yuan between the two markets and anything that threatens to disrupt the supply of yuan into the territory has caused spreads to widen.

  WHAT YUAN PRODUCTS ARE DUE NEXT?

  Investors are eagerly awaiting the launch of yuan-denominated stocks in Hong Kong, which would reduce volatility in the Hong Kong dollar interbank market and increase funds flowing into yuan-denominated assets.

  Cheung Kong (Holdings) is planning on spinning off a REIT in the current quarter in what would be the first yuan-denominated IPO outside China, estimated worth $1.5 billion.

  Banks have started to trade yuan derivatives in Hong Kong in the hope of kickstarting new markets, but trading activity has been sluggish because of a lack of conformity when it comes to assets underlying the derivatives.

  Synthetic yuan bonds that are settled in U.S. dollars have been popular so far this year and ICBC Macau in January issued yuan-denominated one-year and two-year certificates of deposit.

 

  WHAT WILL HAPPEN TO THE NDF MARKET?

  The NDF market, where large trades can be executed relatively quickly because of its liquidity, is safe until yuan liquidity in Hong Kong can grow more.

  Still some opportunities are beginning to emerge in the offshore market. Given that the NDF curve is purely reflecting bets on yuan appreciation and the Hong Kong yuan curve is a partially market determined forward rate, companies could consider buying forward yuan in this market as it is cheaper than hedging their payables in the NDF market. (US$1 = 6.593 yuan) (Editing by Kevin Plumberg and Tomasz Janowski)