China stocks fall as COVID fears outweigh service activity recovery

China stocks fall as COVID fears outweigh service activity recovery
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SHANGHAI (July 5): China stocks fell on Tuesday as concerns over the country's worsening COVID-19 situation overshadowed optimism from recovering service activities, while in Hong Kong, healthcare and energy stocks lifted equities.

China's blue-chip CSI300 Index .CSI300 fell 0.4% by the lunch break, while the Shanghai Composite Index dropped 0.2%.

In Hong Kong, benchmark Hang Seng Index rose 0.6%.

Sentiment in China was curbed by signs of a flare-up in COVID-19 infections, despite data showing China's services activity snapped three months of decline in June and grew at the fastest rate in almost a year.

The total number of domestically transmitted cases jumped to 173 from 27 on a seven-day moving average basis, and the number of cities under lockdown or partial lockdowns doubled, Nomura said in a note.

"Over the past week, the COVID-19 situation has clearly worsened," wrote Ting Lu, Nomura's chief China economist. "Another wave of Omicron could prompt a return to a downswing phase, even though the timing of such an occurrence is uncertain."

Although the Caixin services PMI bounced back to the expansionary zone, "the highly uncertain COVID-19 development still poses persistent pressures on the future recovery of the service sector, which calls for sustained and targeted policy support," HSBC wrote on Tuesday.

Tourism .CSI930633 and food & beverage shares fell in China, but steel, resources and infrastructure stocks rose.

Sourced told Reuters on Tuesday that China will set up a state infrastructure investment fund worth 500 billion yuan ($74.69 billion) to spur infrastructure spending and revive a flagging economy.

In Hong Kong, most sectors rose, with healthcare and energy shares among the biggest gainers.

Hong Kong-listed shares of WuXi Biologics jumped 8%, on news that the Chinese company is a step closer to being taken off a U.S. trade list that it landed on five months ago.