Hong Kong c.bank raises interest rates after Fed move; shares jump

Donny Kwok and Saikat Chatterjee

* Rates in Hong Kong track U.S. ones, due to currency peg

* Banking and property shares jump on benign rate view

* Cbank urges banks to maintain high quality on loans

(Adds stocks reaction, cbank comments)

HONG KONG, March 16 (Reuters) - Hong Kong's central bank

raised its benchmark interest rate by a quarter point for the

second time in three months on Thursday, following a similar

move by the U.S. Federal Reserve and said capital outflows will

not pose challenges for the economy.

While the Fed's move was widely anticipated, economists said

the future path for tightening would be more gradual, sparking a

rally in risky assets from stocks to emerging market

currencies.

Norman Chan, the chief executive of the Hong Kong Monetary

Authority, the territory's de facto central bank, said he was

not worried about capital outflows, as they would happen

naturally as U.S. interest rates rise.

"In the past couple of years, $130 billion came into the

financial system and that is kept in a separate pocket we hold,"

Chan told a media gathering. "We have all the money in highly

liquid form, such as U.S. Treasuries, that we hold ready for

those who want U.S. dollars."

Shares in sub-indexes of banking and property

companies in Hong Kong jumped by more than a percentage

point each in opening trades on Thursday, outperforming the

broader stock market on the benign rate outlook.

The Hong Kong Monetary Authority on Thursday raised the base

rate charged through its overnight discount window by 25 basis

points to 1.25 percent. Hong Kong tracks U.S. rate moves as its

currency is pegged to the U.S. dollar.

Including reinvested dividends, the broader Hong Kong stock

market has outperformed a sub-index of property

and finance companies since the last U.S. rate increase

in December.

HKMA's Chan also asked banks to continue upholding their

high standards in examining applications for big loans from

developers earmarking funds for bidding land for development.

The city's economy has become more dependent on the mainland

at a time when Beijing authorities say meeting a target of 6.5

percent growth this year won't be easy.

More than three fourths of inbound tourists are from the

mainland, a big source of revenue for local companies, and more

than half of its trade is with China.

Hong Kong painted a slightly brighter outlook for the city

last month, projecting its economy to expand between 2 to 3

percent in 2017, helped by stronger factors at home and the

global economy.

Hong Kong's central bank sets its base rate through a

formula that is 50 basis points above the prevailing U.S. Fed

Funds Target or the average of the five-day moving averages of

the overnight and one-month HIBORs (Hong Kong Inter-bank Offered

Rate).

(Editing by Richard Borsuk and Randy Fabi)