SHANGHAI - Hong Kong stocks reached a fresh four-month high on Wednesday morning, after Federal Reserve Chair Janet Yellen's comments on the U.S. economy and the rate hike outlook sent Wall Street to record highs.
China stocks also rose, after strong January inflation data issued on Tuesday gave fresh signs of economic recovery.
The benchmark Hang Seng index added 1.3 percent, to 24,002.57 points, while the Hong Kong China Enterprises Index gained 1.8 percent, to 10,440.28 points.
Yellen said on Tuesday that the Fed will probably need to raise interest rates at an upcoming meeting, and that delaying rate increases could leave the Fed's policymaking committee behind the curve.
Some analysts see a hike at the next Fed policy meeting, in March.
But Alex Wong, Hong Kong-based director of Ample Finance Group, said concern about monetary tightening is being offset by prospects of higher economic growth.
The initial negative impact of Yellen's comments "was short-lived, you can tell from other global markets, " Wong said, adding higher rates would benefit banks, while hurting profitability of real estate plays due to higher borrowing costs.
Financial stocks in Hong Kong rose 1.8 percent to an 18-month high in early trading. Hong Kong tracks U.S. interest rates closely due to a currency peg to the greenback.
Sustained southbound inflows through the Shanghai-Hong Kong Stock Connect also lent some support. Mainland investors used 2.1 billion yuan on daily average, or 20 percent of quota, this month through Tuesday, compared with an average of less than 11 percent in January. Wong expects the trend to continue.
China stocks eked out small gains by the lunch break, underpinned by strength in state-owned enterprises (SOEs) on restructuring hopes.
The blue-chip CSI300 index rose 0.2 percent, to 3,441.75 points at the end of the morning and the Shanghai Composite Index gained 0.3 percent, to 3,228.00 points.
The Shanghai SOEs Index gained 2 percent after state media reported that such state firms in Shanghai would have a meeting on Thursday, which was expected to set the course for this year's reform.
Bank stocks gained 0.9 percent as some large Chinese joint-stock banks and local commercial banks were reported by Chinese media to be involved in the second batch of non-performing asset securitisation.
The CSI commodity equity index retreated 0.6 percent.