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* HSI +0.3 pct, H-shares +0.4 pct, CSI300 +1.1 pct
* Expected PBOC cash injection eases tightening worries
* AIA at record closing high after strong profit growth
* China brokerages enjoy another regulatory boost
By Clement Tan
HONG KONG, Feb 27 (Reuters) - China shares had their best day in three weeks on Wednesday, thanks to a proposed relaxation of investment rules that boosted listed brokerages and to expectations of greater money market liquidity.
The Hong Kong market finished just above Tuesday's two-month low, as strong gains for AIA Group offset weakness in Esprit Holdings on a day where corporate earnings were in focus.
The Hang Seng Index, which ended Tuesday at its lowest close since Dec. 21, edged up 0.3 percent to 22,577. The China Enterprises Index of the top Chinese listings in Hong Kong climbed 0.4 percent.
Hong Kong turnover lingered below its 20-day below average on Wednesday, as it had for all but one session since Feb. 7. Traders said short-selling accounted for 9.6 percent of volume, below Tuesday's 12 percent but above the 8 percent historical average. Shanghai volume was some 21 percent below average.
The CSI300 of the top Shanghai and Shenzhen A-share listings closed up 1.1 percent from Tuesday's close, the lowest since Jan. 17. The Shanghai Composite Index rose 0.9 percent. Wednesday's gains were the best for both indexes since Feb. 1.
Gains came as China's central bank looked set to resume injecting liquidity into the money market, traders said on Wednesday. Such a development would ease worries that recent moves to drain money signalled the beginning of a wider tightening cycle.
"I don't think there will be too many negative surprises from here, so this might be a good point to selectively buy on weakness into sectors with a good theme story," said Wang Aochao, UOB Kay Hian's Shanghai-based head of research.
The Chinese brokerage sector seems to be one such example. On Wednesday, the sector rose after China's market regulator issued draft rules aimed at allowing brokerages to package, securitise and resell a wide range of assets from real estate to receivables to commercial paper.
Shares of Citic Securities and Haitong Securities , the country's two largest listed brokerages, both jumped more than 3 percent in Shanghai. In Hong Kong, Citic rose 2.4 percent, but it is still nearly 13 percent off a Jan. 30 high.
Chinese brokerages are seen benefitting from incremental moves Beijing is likely to make throughout the year to liberalise capital markets in the mainland. The focus may be reinforced at next week's annual parliamentary meetings.
The annual Chinese People's Political Consultative Conference and National People's Congress, where Xi Jinping is expected to be confirmed as president, start in Beijing on March 3 and 5, respectively.
EARNINGS IN FOCUS
AIA Group posted its best single-day gain in almost six months, jumping 4.1 percent to a record closing high after it posted 89 percent growth in 2012 net profit and announced plans to open a representative office in Myanmar.
AIA shares, which strategists at Jeffries reiterated on Wednesday as among their top picks in the offshore China market, have bucked the downward trend in the broader Hong Kong market in February as investors opted for the perceived earnings safety of Asia's third-largest insurer.
Strategists at Jeffries reiterated on Wednesday that AIA, Asia's third-largest insurer, is among their top picks in the offshore China market. The stock is up 6.5 percent in February, during which the Hang Seng Index has shed 4.9 percent.
Hong Kong property developer New World Development closed up 3.8 percent after posting a 91 percent jump in first half net profit from a year earlier. Sun Hung Kai Properties , which is due to report on Thursday, rose 1.5 percent.
China Vanke jumped 4.6 percent ahead of the release of its earnings for full year 2012. After markets closed, the country's biggest real estate developer by sales, posted a 33 percent profit rise.
Guangzhou Automobile Group jumped 6 percent from Tuesday's three-month closing low in strong volumes after UBS analysts upgraded the stock from "sell" to "neutral," while raising their target price by 24 percent.
Esprit Holdings shed 0.8 percent, reversing midday gains after posting a far steeper-than-expected loss for the six months ended December as the region's economic gloom slashed sales. Its new chief said the first half of 2013 were likely to be just as grim.