* HSI +0.2 pct, H-shares +0.2 pct, CSI300 +0.3 pct
* Biostime leads dairy sector gains after Fonterra China ban
* China shippers get policy lift
* HSBC at 3-mth high ahead of H1 earnings
By Clement Tan
HONG KONG, Aug 5 (Reuters) - Hong Kong and China sharesedged higher in weak trade on Monday, as baby product producersjumped on hopes of higher demand after the official Xinhua newsagency reported China may allow more couples to have twochildren.
Most dairy producers also rose after China banned NewZealand milk power imports following a contamination scare atNew Zealand's Fonterra, a development that sank WantWant China, seen reliant on New Zealand imports.
"Retail interest in baby products on China potentiallyrelaxing its one-child policy has not quite picked up yet, butthere are some funds that have been positioning for any eventualchange," said Jackson Wong, Tanrich Securities' vice-presidentfor equity sales.
At midday, the Hang Seng Index was up 0.2 percent at22,227 points, hovering at a two-month high. The ChinaEnterprises Index of the top Chinese listings in HongKong also edged up 0.2 percent.
The CSI300 of the leading Shanghai and ShenzhenA-share listings rose 0.3 percent, while the Shanghai CompositeIndex edged up 0.2 percent. Midday Shanghai volume wasat its weakest in nearly a month.
China Modern Dairy shares spiked 7.6 percent,while Biostime, which imports the bulk of its dairyproducts from Europe, surged 8.6 percent on hopes that demandfor them will rise following the ban on Fonterra's New Zealandproducts.
But Want Want China, which sources the majority ofits raw milk from Fonterra, fell 3.2 percent. In a note toclients, Barclays analysts wrote that Want Want's managementsaid its procurement from Fonterra should not be adverselyimpacted as it imports raw milk and not whey protein products,the subject of the contamination scare.
A Xinhua report that China could let couples have asecond-child if one parent is a single child also supported theChinese dairy sector and spawned gains for baby product makers.
Currently, to get permission, both parents must themselvesbe single childs. The 21st Century Business Herald Newspaperreported last Friday this possible development as likely to takeplace later this year or early next year, with an unconditionaltwo-child policy policy possible after 2015.
In Hong Kong, baby-product makers Goodbaby International surged 8.5 percent to its highest in more than sixweeks while Frog Prince International climbed 4.1percent.
China Rongsheng climbed 3.1 percent in Hong Kongwhile Guangzhou Shipping surged 7.8 percent inShanghai after Xinhua reported that China's cabinet issued athree-year plan to upgrade and restructure the shipbuildingindustry through 2015.
The report said the plan focuses on seven tasks, includingaccelerating innovation, controlling new capacity, focusing onhigh-end products and promoting civil-military integration.
EARNINGS LOOM FOR HSBC
HSBC Holdings shares rose 0.7 percent to athree-month high ahead of interim earnings later in the day. Up10 percent on the year, HSBC is now trading at 10.7 timesforward 12-month earnings, an 18 percent discount to itshistoric median, according to Thomson Reuters StarMine.
HSBC's half-year profit is set to rise 15 percent to morethan $14 billion as a three-year cost cutting plan starts to payoff and lower bad debts compensate for a fall in revenue atEurope's biggest bank.
China Foods tumbled 5 percent after it issued asecond profit warning in two months of a net loss at its cominginterim earnings announcement.
Interim corporate results will dominate the China and HongKong markets over the next few weeks, though a slew of China'sJuly economic data will be in focus, starting with trade andpossibly, money supply and loan growth data on Thursday.
HSBC Holdings (HSBA)