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Shanghai Composite up 4.6%, CSI300 up 5.9%

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Hang Seng drops 9.4%; record fall in property stocks

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Aussie dollar, iron ore, miners and luxury shares sink

(Updates prices at 1040 GMT)

By Samuel Shen and Tom Westbrook

SHANGHAI/SINGAPORE, Oct 8 (Reuters) - China's stock

markets roared back from a week-long break to reach their

highest levels in more than two years at the open, before paring

gains after officials failed to inspire confidence in stimulus

plans intended to revive the economy.

Hong Kong's Hang Seng index is the best performing

major market this year, having seen its steepest rally in a

generation over recent weeks, and continuing to post gains

during the onshore holiday. But on Tuesday, it closed 9.4% lower

- its heaviest fall since 2008.

Economic planner chairman Zheng Shanjie told reporters China

was "fully confident" of achieving economic targets for 2024 and

would pull forward 200 billion yuan ($28.36 billion) from next

year's budget to spend on investment projects and support local

governments.

But his failure to detail sufficiently big or new measures

rekindled market doubts about Beijing's commitment to ensuring

the world's second largest economy can climb out of its most

serious slump since the global pandemic and reach 5% growth.

The Shanghai Composite closed 4.6% higher while the

blue-chip CSI300 rose 5.9% - big moves but below gains

of more than 10% seen early in a rollercoaster day with turnover

of a record 3.45 trillion yuan.

"Ultimately for the rally to be sustainable, we need to see

more fiscal policy and more measures to support the economy and

the property market," Vasu Menon, managing director of

investment strategy at OCBC in Singapore, said.

"A great deal of hope has been built into the strong rally

in recent weeks and we now need to see additional government

policy action to support the uptrend."

China-exposed assets around the world were also caught up in

the selling. The Australian dollar fell 0.5% and the

yuan headed for its sharpest drop in 10 months.

Iron ore and other industrial metal prices slid, with the

steel ingredient at one point down 5% in Dalian and London

copper hitting its lowest in two weeks.

Global miners Rio Tinto and BHP fell in

Australia, while, in Europe, miners were down 4% on

track for their biggest daily fall in 18 months and luxury

stocks tumbled.

FRENZY AND INDEX FUNDS

Before the Golden Week break, China announced the most

aggressive stimulus measures since the pandemic and the CSI300

gained 25% over five sessions.

Flows on Tuesday were directed at broad index funds and

pockets of the market expected to benefit from government

largesse.

By midday, nearly 20 exchange-traded funds traded at a

premium of more than 20% to the value of their assets, as funds

rushed in faster than they could be rerouted to buy shares.

The record turnover shows "massive profit taking as well as

fresh money inflow," Wen Hao, a veteran investor in the eastern

Hangzhou city, said.

"It's still early stage of the bull market, and still a good

time to buy stocks," he said, recommending small-caps that

typically outperform blue-chips when the market is strong.

On Tuesday small companies outshone larger ones and the

biggest gainers were tech hardware makers, brokers, health care

companies and builders. Some of the biggest winners from last

week became the biggest losers in Hong Kong.

The CSI semiconductor sub-index surged 17% and

a sub-index of brokers was up 10.6%. Thematic

indexes from biotechnology to defence

and electric vehicles rose more than 11%.

In Hong Kong, however, mainland property developers

fell 15.5%, the biggest one-day percentage drop on record.

Analysts said the selling reflected profit taking after a week

of gains and balancing mainland moves, rather than a mood shift.

"The returns between Hong Kong and Chinese stocks remain

largely parallel," said Sean Teo, sales trader at Saxo in

Singapore.

"This underperformance may be due to some investors

reallocating their funds from Hong Kong to Chinese markets,

where government stimulus is more direct."

($1 = 7.0520 Chinese yuan renminbi)